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Information Flows and Aggregate Persistence

Oleksiy Kryvtsov ()

Staff Working Papers from Bank of Canada

Abstract: Models with imperfect information that generate persistent monetary nonneutrality predominantly rely on assumptions leading to substantial heterogeneity of information across price-setters. This paper develops a quantitative general equilibrium model in which the degree of heterogeneity of information is determined endogenously. In the model, firms use two technologies to acquire information: costly updating to full information and costless learning from publicly observed market signals. Price changes of firms that update information infrequently are synchronized with market signals. This leads to an externality whereby less frequent updating increases the information conveyed by prices and quantities. When the model is calibrated to moments from a panel of BLS commodity sectors, it is found that the private value of costly updating to full information is close to zero, market signals are informative, and the real effects of monetary shocks are small.

Keywords: Business fluctuations and cycles; Inflation and prices; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: D83 E31 E32 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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Related works:
Working Paper: Information Flows and Aggregate Persistence (2007) Downloads
Working Paper: Information Flows and Aggregate Persistence (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:09-11

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