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Dynamics of Sticky Information and Sticky Price Models in a New Keynesian DSGE Framework

Mesut Arslan

MPRA Paper from University Library of Munich, Germany

Abstract: Recent literature on monetary policy analysis extensively uses the sticky price model of price adjustment in a New Keynesian Macroeconomic framework. This price setting model, however, has been criticized for producing implausible results regarding inflation and output dynamics. This paper examines and compares dynamic responses of the sticky price and sticky information models to a cost-push shock in a New Keynesian DSGE framework. It finds that the sticky information model produces more reasonable dynamics through lagged, gradual and hump-shaped responses to a shock as observed in data. However, these responses depend on the persistence of the shock.

Keywords: Monetary policy; Sticky information; Sticky prices; Phillips curve (search for similar items in EconPapers)
JEL-codes: E52 E50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2007-08
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Journal Article: Dynamics of sticky information and sticky price models in a New Keynesian DSGE framework (2008) Downloads
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