Sticky Information in General Equilibrium

29 Pages Posted: 23 Oct 2006 Last revised: 8 Mar 2007

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: October 2006

Abstract

This paper develops and analyzes a general-equilibrium model with sticky information. The only rigidity in goods, labor, and financial markets is that agents are inattentive, sporadically updating their information sets, when setting prices, wages, and consumption. After presenting the ingredients of such a model, the paper develops an algorithm to solve this class of models and uses it to study the model's dynamic properties. It then estimates the parameters of the model using U.S. data on five key macroeconomic time series. It finds that information stickiness is present in all markets, and is especially pronounced for consumers and workers. Variance decompositions show that monetary policy and aggregate demand shocks account for most of the variance of inflation, output, and hours.

Suggested Citation

Mankiw, N. Gregory and Reis, Ricardo A.M.R., Sticky Information in General Equilibrium (October 2006). NBER Working Paper No. w12605. Available at SSRN: https://ssrn.com/abstract=938398

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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