Pervasive Stickiness

26 Pages Posted: 28 Feb 2006

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)

Date Written: March 2006

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 shortrun 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 Classification: E30, E10

Suggested Citation

Mankiw, N. Gregory and Reis, Ricardo A.M.R., Pervasive Stickiness (March 2006). Harvard Institute of Economic Research Discussion Paper No. 2111. Available at SSRN: https://ssrn.com/abstract=887302 or http://dx.doi.org/10.2139/ssrn.887302

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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