Sticky Prices versus Sticky Information: Does it Matter for Policy Paradoxes?

Gauti Eggertson and Vaishali Garga
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Gauti Eggertson: Brown University
Authors registered in the RePEc Author Service: Gauti B. Eggertsson

Review of Economic Dynamics, 2019, vol. 31, 363-392

Abstract: This paper shows that under a strict inflation targeting regime, the government spending multiplier at the zero lower bound (ZLB) is larger under sticky information than under sticky prices. Similarly, well known paradoxes, e.g., the paradox of toil and the paradox of flexibility become more severe under sticky information. For the case of sticky information it is important to assume that the fiscal policy intervention coincides with the duration of zero interest rates, while such a distinction is less important for sticky prices. We unify and clarify results that may appear to contradict each other in the literature. (Copyright: Elsevier)

Keywords: Zero lower bound; Liquidity trap; Paradox of toil; Paradox of flexibility; Government spending multiplier; Sticky information (search for similar items in EconPapers)
JEL-codes: E52 E62 E63 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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Working Paper: Sticky Prices Versus Sticky Information: Does it Matter for Policy Paradoxes? (2017)
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DOI: 10.1016/j.red.2018.09.003

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