Inflation Inertia in Sticky Information Models

Olivier Coibion

The B.E. Journal of Macroeconomics, 2006, vol. 6, issue 1, 1-29

Abstract: This paper considers whether the sticky information model of Mankiw and Reis (2002) can robustly deliver inflation inertia. I find that four features of the model play a key role in determining inflation inertia: the frequency of information updating, the degree of real rigidities, the nature and persistence of monetary policy, and the presence or not of information stickiness elsewhere in the economy. Real rigidities serve to dampen firms’ desired price changes and are a critical element in delivering inflation inertia. The type of monetary policy, money-growth vs. interest rate rules, also matters, with Taylor rules making inflation inertia less likely than under money growth rules. Adding sticky information in consumption to the model yields a more gradual adjustment of output, thereby decreasing the incentive for firms to change prices on impact and increasing the inertia of inflation. I also explore the implications of using random versus fixed durations of information rigidity and argue that with the latter, the choice of the policy rule has a smaller effect on the qualitative response of inflation. These results allow us to sort out some conflicting conclusions on inflation inertia in sticky information models and suggest that inertia is more sensitive to parameter choices than previously thought.

Keywords: Inflation Inertia; Sticky Information (search for similar items in EconPapers)
Date: 2006
References: View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Downloads: (external link)
https://doi.org/10.2202/1534-6005.1374 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejmac:v:contributions.6:y:2006:i:1:n:1

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejm/html

DOI: 10.2202/1534-6005.1374

Access Statistics for this article

The B.E. Journal of Macroeconomics is currently edited by Arpad Abraham and Tiago Cavalcanti

More articles in The B.E. Journal of Macroeconomics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().