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

Arslan, Mesut Murat (2007): Dynamics of Sticky Information and Sticky Price Models in a New Keynesian DSGE Framework.

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.

• Item Type: MPRA Paper
• Institution: Middle East Technical University (METU)
• Language: English
• Keywords: Monetary policy; Sticky information; Sticky prices; Phillips curve
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General

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