## STICKY INFORMATION VERSUS STICKY PRICES: A PROPOSAL TO REPLACE THE NEW KEYNESIAN PHILLIPS CURVE (2002)

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@MISC{Mankiw02stickyinformation,

author = {N. Gregory Mankiw and Ricardo Reis},

title = {STICKY INFORMATION VERSUS STICKY PRICES: A PROPOSAL TO REPLACE THE NEW KEYNESIAN PHILLIPS CURVE },

year = {2002}

}

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### 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.

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Citation Context ...scribe the stochastic process of inflation. The impulse response of inflation for a unit shock to aggregate demand is given by {φv}. The autocorrelation coefficients of order j are then given by (see =-=Hamilton, 1994-=-, p. 52): ∞ ∞ (A27) Σ φv φv-j / Σ φv 2 . v=j v=0 Consider now the sticky-information model. Similarly to 36(A22), conjecture the solution: πt = Σ γi εt-i or pt = Σ Σ γi εt-i-k, where the sums go from... |

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