Dynamics of sticky information and sticky price models in a New Keynesian DSGE framework

Creative Commons License

Arslan M. M.

ECONOMIC MODELLING, vol.25, no.6, pp.1276-1294, 2008 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 25 Issue: 6
  • Publication Date: 2008
  • Doi Number: 10.1016/j.econmod.2008.04.006
  • Journal Name: ECONOMIC MODELLING
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.1276-1294
  • Middle East Technical University Affiliated: No

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. (C) 2008 Elsevier B.V. All rights reserved.