On the Epidemiological Microfoundations of Sticky Information

11 Pages Posted: 20 Jul 2006

See all articles by Ricardo Cavaco Nunes

Ricardo Cavaco Nunes

Federal Reserve Banks - Federal Reserve Bank of Boston

Date Written: May 2006

Abstract

The sticky information setup assumes that information disseminates slowly throughout the population, inducing interesting dynamics in macroeconomic models. Carroll (2003) estimates an epidemiological model of expectations, providing a microfoundation for the sticky information model of Mankiw and Reis (2002). We show that this microfoundation is rather weak. Firstly, it is hard to argue that professional forecasters formed expectations rationally. Second, if we estimate an equation where expectations of households are updated towards rational expectations then the results differ dramatically. Third, by examining the time series of the median household forecaster we manage to invalidate the epidemiological microfoundation of sticky information models.

Keywords: D84, E31

JEL Classification: Inflation, expectations

Suggested Citation

Nunes, Ricardo Cavaco, On the Epidemiological Microfoundations of Sticky Information (May 2006). Available at SSRN: https://ssrn.com/abstract=917961 or http://dx.doi.org/10.2139/ssrn.917961

Ricardo Cavaco Nunes (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

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