publication . Article . Preprint . Report . Other literature type . 2002

Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve

Ricardo Reis;
Open Access English
  • Published: 01 Nov 2002
  • Publisher: Massachusetts Institute of Technology Press
  • Country: United States
Abstract
This paper examines a model of dynamic price adjustment based on the assumption that information disseminates slowly throughout the population. Compared with the commonly used sticky-price model, this sticky-information model displays three related properties that are more consistent with accepted views about the effects of monetary policy. First, disinflations are always contractionary (although announced disinflations are less contractionary than surprise ones). Second, monetary policy shocks have their maximum impact on inflation with a substantial delay. Third, the change in inflation is positively correlated with the level of economic activity.
Subjects
free text keywords: Prices ; Information theory, jel:E0, jel:E3, Economics and Econometrics
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