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A Tale of Two Rigidities: Sticky Prices in a Sticky‐Information Environment
Author(s) -
KNOTEK II EDWARD S.
Publication year - 2010
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2010.00353.x
Subject(s) - macro , econometrics , economics , micro level , inference , indirect inference , rigidity (electromagnetism) , phillips curve , empirical evidence , microeconomics , computer science , monetary economics , mathematics , statistics , monetary policy , engineering , artificial intelligence , economic impact analysis , philosophy , structural engineering , epistemology , estimator , programming language
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.