|
A Tale of Two Rigidities: Sticky Prices in a
Sticky-Information Environment By Edward S. Knotek II |
|
Abstract Macroeconomic models with microeconomic foundations afford the opportunity to compare the model’s behavior with empirical evidence at the macro and micro levels. This paper proposes a model that combines two strands of the literature on stickiness to match both sets of empirical facts. (1) Firms acquire information infrequently, as in Mankiw and Reis (2002), resulting in sticky information. (2) Firms face menu costs to change prices, leading to state-dependent sticky prices at the micro level. I estimate key structural parameters via indirect inference and show that a model of sticky prices in a sticky-information environment is consistent with micro and macro evidence. In this context, sticky prices are not only useful in matching the micro data; they also improve the model’s ability to fit the macro data as well. Keywords: Sticky prices, sticky information, indirect inference Back to top RWP home |