Hostname: page-component-586b7cd67f-l7hp2 Total loading time: 0 Render date: 2024-11-24T01:06:33.987Z Has data issue: false hasContentIssue false
  • English
  • Français

INFLATION, INFORMATION RIGIDITY, AND THE STICKY INFORMATION PHILLIPS CURVE

Published online by Cambridge University Press:  18 December 2017

César Carrera  and
N.R. Ramírez-Rondán
César Carrera
Affiliation:
Central Bank of Peru and Universidad del Pacífico
N.R. Ramírez-Rondán*
Affiliation:
Universidad del Pacífico
*
Address correspondence to: N.R. Ramírez-Rondán, Department of Economics, Universidad del Pacífico, Av. Salaverry 2020, Lima 11, Lima, Peru; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

The Great Moderation is characterized as a period of stable macroeconomic conditions, especially with regard to inflation. Under the sticky information theory, this environment may provide a few incentives for agents to update information on inflation, thus, producing a new slope of the sticky information Phillips curve. We estimate the degree of information rigidity implied by the sticky information Phillips curve. Using threshold models, we identify two regimes of high and low inflation, finding that each identified regime is associated with a specific degree of information stickiness. This evidence is consistent with agents that update information faster when inflation is higher.

Keywords

InflationSticky InformationPhillips CurveThreshold Model
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 7 , October 2019 , pp. 2597 - 2615
Copyright
Copyright © Cambridge University Press 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We wish to thank Carl Walsh, Ricardo Reis, Thomas Wu, Peter Klenow, Uwe Hassler, Yuriy Gorodnichenko, Juan J. Dolado, Carlos Carvalho, Xuguang Sheng, Sofia and Catherine Carrera, Todd Walker, William A. Barnett, an associate editor, and two anonymous referees for valuable comments and suggestions. We also thank the participants of the Macro Workshop at UC Santa Cruz; the research seminar at the Gerzensee Study Center; the 18th Annual Meeting of the Latin American and Caribbean Economic Association (LACEA); the 2014 Congress of the Peruvian Economic Association; the 31st Annual Meeting of Economists of the Central Bank of Peru; and the 35th International Symposium on Forecasting of the International Institute of Forecasters (IIF). The views expressed in this document are those of the authors and do not necessarily reflect those of the Central Bank of Peru. All remaining errors are ours.

References

REFERENCES

Ball, Laurence, Mankiw, Gregory, and Romer, David (1988) The new Keynesian economics and the output-inflation trade-off. Brookings Papers on Economic Activity 19 (1), 1–82.10.2307/2534424Google Scholar
Ball, Laurence and Romer, David (1990) Real rigidities and the non-neutrality of money. Review of Economic Studies 57 (2), 183–203.10.2307/2297377Google Scholar
Boco, Hervé, Germain, Laurent, and Rousseau, Fabrice (2016) Heterogeneous noisy beliefs and dynamic competition in financial markets. Economic Modelling 54 (C), 347–363.10.1016/j.econmod.2016.01.007Google Scholar
Canova, Fabio (2007) G-7 inflation forecasts: Random walk, phillips curve or what else? Macroeconomic Dynamics 11 (1), 1–30.10.1017/S136510050705033XGoogle Scholar
Carrera, César (2012) Estimating information rigidity using firms' survey data. The B.E. Journal of Macroeconomics 12 (1), 1–34.10.1515/1935-1690.2377Google Scholar
Carroll, Christopher D. (2003) Macroeconomic expectations of households and professional forecasters. The Quarterly Journal of Economics 118 (1), 269–298.10.1162/00335530360535207Google Scholar
Chan, K. S. (1993) Consistency and limiting distribution of the least squares estimator of a threshold autoregressive model. The Annals of Statistics 21 (1), 520–533.10.1214/aos/1176349040Google Scholar
Chari, V. V., Kehoe, Patrick J., and McGrattan, Ellen R. (2000) Sticky price models of the business cycle: Can the contract multiplier solve the persistence problem? Econometrica 68 (5), 1151–1180.10.1111/1468-0262.00154Google Scholar
Coibion, Olivier (2010) Testing the sticky information Phillips curve. The Review of Economics and Statistics 92 (1), 87–101.10.1162/rest.2009.11148Google Scholar
Coibion, Olivier and Gorodnichenko, Yuriy (2012) What can survey forecasts tell us about information rigidities? Journal of Political Economy 120 (1), 116–159.10.1086/665662Google Scholar
Crucini, Mario J., Shintani, Mototsugu, and Tsuruga, Takayuki (2015) Noisy information, distance and law of one price dynamics across US cities. Journal of Monetary Economics 74, 52–66.10.1016/j.jmoneco.2015.06.003Google Scholar
Döpke, Jörg, Dovern, Jonas, Fritsche, Ulrich, and Slacalek, Jiri (2008a) Sticky information Phillips curves: European evidence. Journal of Money, Credit and Banking 40 (7), 1513–1520.10.1111/j.1538-4616.2008.00169.xGoogle Scholar
Döpke, Jörg, Dovern, Jonas, Fritsche, Ulrich, and Slacalek, Jiri (2008b) The dynamics of European inflation expectations. B.E. Journal of Macroeconomics 8 (1), 1–23.Google Scholar
Gali, Jordi and Gertler, Mark (1999) Inflation dynamics: A structural econometric analysis. Journal of Monetary Economics 44 (2), 195–222.10.1016/S0304-3932(99)00023-9Google Scholar
Hansen, Bruce E. (2000) Sample splitting and threshold estimation. Econometrica 68 (3), 575–603.10.1111/1468-0262.00124Google Scholar
Khan, Hashmat and Zhu, Zhenhua (2006) Estimates of the sticky-information Phillips curve for the United States. Journal of Money, Credit and Banking 38 (1), 195–207.10.1353/mcb.2006.0018Google Scholar
Kiley, Michael T. (2000) Endogenous price stickiness and business cycle persistence. Journal of Money, Credit and Banking 32 (1), 28–53.10.2307/2601091Google Scholar
Kiley, Michael T. (2007a) A quantitative comparison of sticky-price and sticky-information models of price setting. Journal of Money, Credit and Banking 39 (s1), 101–125.10.1111/j.1538-4616.2007.00017.xGoogle Scholar
Kiley, Michael T. (2007b) Is moderate-to-high inflation inherently unstable? International Journal of Central Banking 3 (2), 173–201.Google Scholar
Klenow, Peter J. and Willis, Jonathan L. (2007) Sticky information and sticky prices. Journal of Monetary Economics 54, 79–99.10.1016/j.jmoneco.2007.06.003Google Scholar
Korenok, Oleg (2008) Empirical comparison of Sticky price and sticky information models. Journal of Macroeconomics 30 (3), 906–927.10.1016/j.jmacro.2007.04.006Google Scholar
Lucas, Robert E. (1973) Some international evidence on output-inflation tradeoffs. American Economic Review 63 (3), 326–334.Google Scholar
Lucas, Robert E. (1976) Econometric policy evaluation: A critique. Carnegie-Rochester Conference Series on Public Policy 1 (1), 19–46.10.1016/S0167-2231(76)80003-6Google Scholar
Maćkowiak, Bartosz and Wiederholt, Mirko (2009) Optimal sticky prices under rational inattention. American Economic Review 99 (3), 769–803.10.1257/aer.99.3.769Google Scholar
Mankiw, Gregory and Reis, Ricardo (2002) Sticky information versus sticky prices: A proposal to replace the new Keynesian Phillips curve. The Quarterly Journal of Economics 117 (4), 1295–1328.10.1162/003355302320935034Google Scholar
Nimark, Kristoffer P. (2014) Man-bites-dog business cycles. American Economic Review 104 (8), 2320–2367.10.1257/aer.104.8.2320Google Scholar
Okun, Arthur (1971) The mirage of steady inflation. Brookings Papers on Economic Activity 2, 485–498.10.2307/2534234Google Scholar
Paternoster, Raymond, Brame, Robert, Mazerolle, Paul, and Piquero, Alex R. (1998) Using the correct statistical test for equality of regression coefficients. Criminology 36 (4), 859–866.10.1111/j.1745-9125.1998.tb01268.xGoogle Scholar
Reis, Ricardo (2006) Inattentive producers. Review of Economic Studies 73 (3), 793–821.10.1111/j.1467-937X.2006.00396.xGoogle Scholar
Rotemberg, Julio and Woodford, Michael (1997) An optimization-based econometric framework for the evaluation of monetary policy. In NBER Macroeconomics Annual, NBER Chapters, vol. 12, pp. 297–361. Cambridge, MA: The MIT Press.Google Scholar
Sims, Christopher A. (2003) Implications of rational inattention. Journal of Monetary Economics 50 (3), 665–690.10.1016/S0304-3932(03)00029-1Google Scholar
Stock, James H. and Watson, Mark W. (2003) Forecasting output and inflation: The role of asset prices. Journal of Economic Literature 41 (3), 788–829.10.1257/jel.41.3.788Google Scholar
Taylor, John B. (1981) On the Relationship between the variability of inflation and the average inflation rate. Carnegie-Rochester Conference Series on Public Policy 15, 57–85.10.1016/0167-2231(81)90019-1Google Scholar
Walsh, Carl E. (2010) Monetary Theory and Policy, 3rd ed. Cambridge, MA: MIT Press.Google Scholar
Woodford, Michael (2002) Imperfect common knowledge and the effects of monetary policy. In Aghion, Philippe, Frydman, Roman, Stiglitz, Joseph, and Woodford, Michael (eds.), Knowledge, Information, and Expectations in Modern Macroeconomics: In Honor of Edmund S. Phelps, pp. 25–58. Princeton and Oxford: Princeton University Press.Google Scholar
Woodford, Michael (2003) Interest and Prices: Foundations of a Theory of Monetary Policy, vol. 1. Princeton and Oxford: Princeton University Press.Google Scholar
Zhang, Lingxiang (2017) Modeling the Phillips curve in China: A nonlinear perspective. Macroeconomic Dynamics 21 (2), 439–461.10.1017/S1365100515000577Google Scholar