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Pervasive Stickiness (Expanded Version)

N. Gregory Mankiw () and Ricardo Reis

No 12024, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper explores a macroeconomic model of the business cycle in which stickiness of information is pervasive. We start from a familiar benchmark classical model and add to it the assumption that there is sticky information on the part of consumers, workers, and firms. We evaluate the model against three key facts that describe short-run fluctuations: the acceleration phenomenon, the smoothness of real wages, and the gradual response of real variables to shocks. We find that pervasive stickiness is required to fit the facts. We conclude that models based on stickiness of information offer the promise of fitting the facts on business cycles while adding only one new plausible ingredient to the classical benchmark.

JEL-codes: E30 E10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2006-02
Note: EFG ME
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Published as Mankiw, N. Gregory and Ricardo Reis. "Pervasive Stickiness," American Economic Review, 2006, v96(2,May), 164-169.

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