NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Pervasive Stickiness (Expanded Version)

N. Gregory Mankiw, Ricardo Reis

NBER Working Paper No. 12024
Issued in February 2006
NBER Program(s):   EFG   ME

This paper explores a macroeconomic model of the business cycle in which stickiness of information is pervasive. We start from a familiar benchmark classical model and add to it the assumption that there is sticky information on the part of consumers, workers, and firms. We evaluate the model against three key facts that describe short-run fluctuations: the acceleration phenomenon, the smoothness of real wages, and the gradual response of real variables to shocks. We find that pervasive stickiness is required to fit the facts. We conclude that models based on stickiness of information offer the promise of fitting the facts on business cycles while adding only one new plausible ingredient to the classical benchmark.

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Document Object Identifier (DOI): 10.3386/w12024

Published: Mankiw, N. Gregory and Ricardo Reis. "Pervasive Stickiness," American Economic Review, 2006, v96(2,May), 164-169.

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