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Sticky Information and Sticky Prices By
Peter J. Klenow and Jonathan L. Willis |
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Abstract In the U.S. and Europe, prices change at least once a
year. Yet nominal macro shocks seem to have real effects lasting well beyond
a year. "Sticky information" models, as posited by Mankiw and Reis (2002),
Sims (2003), and Woodford (2003), can reconcile micro flexibility with macro
rigidity. We simulate a sticky information model in which price setters
update information on macro shocks less frequently than information on micro
shocks. We then examine price changes in the micro data underlying the U.S.
CPI. Empirical price changes react to old information, just as sticky
information models predict. Keywords: Sticky information, state dependent pricing Back to top RWP home |