Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve

50 Pages Posted: 1 May 2001

See all articles by N. Gregory Mankiw

N. Gregory Mankiw

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Ricardo Reis

London School of Economics & Political Science (LSE); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2001

Abstract

This paper examines a model of dynamic price adjustment based on the assumption that information disseminates slowly throughout the population. Compared to the commonly used sticky-price model, this sticky-information model displays three, related properties that are more consistent with accepted views about the effects of monetary policy. First, disinflations are always contractionary (although announced disinflations are less contractionary than surprise ones). Second, monetary policy shocks have their maximum impact on inflation with a substantial delay. Third, the change in inflation is positively correlated with the level of economic activity.

Suggested Citation

Mankiw, N. Gregory and Reis, Ricardo A.M.R., Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve (May 2001). Harvard Institute of Economic Research Paper No. 1922. Available at SSRN: https://ssrn.com/abstract=268692 or http://dx.doi.org/10.2139/ssrn.268692

N. Gregory Mankiw (Contact Author)

Harvard University - Department of Economics ( email )

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Ricardo A.M.R. Reis

London School of Economics & Political Science (LSE) ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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