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A Tale of Two Rigidities: Sticky Prices in a Sticky‐Information Environment

Edward Knotek ()

Journal of Money, Credit and Banking, 2010, vol. 42, issue 8, 1543-1564

Abstract: Macroeconomic models with microeconomic foundations allow for comparisons with macro and micro empirical evidence. This paper proposes a model wherein firms: (i) acquire information infrequently, generating sticky information (Mankiw and Reis 2002) and (ii) face menu costs, producing state‐dependent sticky prices. I estimate parameters via indirect inference and show that under considerable real rigidity, sticky prices in a sticky‐information environment are consistent with micro and macro evidence. Sticky prices not only help match micro data on price changes’ size and durations between adjustments; they also improve the model's fit with the macro data, as embodied in an empirical Phillips curve.

Date: 2010
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Journal Article: A Tale of Two Rigidities: Sticky Prices in a Sticky-Information Environment (2010)
Working Paper: A tale of two rigidities: sticky prices in a sticky-information environment (2006) Downloads
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