A Sticky-Information General-Equilibrium Model for Policy Analysis
This paper presents a dynamic stochastic general-equilibrium model with a single friction in all markets: sticky information. In this economy, agents are inattentive because of costs of acquiring, absorbing and processing information, so that the actions of consumers, workers and firms are slow to incorporate news. This paper presents the details of how an economy with pervasive inattentiveness functions, and develops a set of algorithms that solve the model quickly. It then applies these to estimate the model using data for the United States post-1986 and for the Euro-area post-1993, and to conduct counterfactual policy experiments. The end result is a laboratory that is rich enough to account for the dynamics of at least five macroeconomic series (inflation, output, hours, interest rates, and wages), and which can be used to inform applied monetary policy.
I am grateful to Olivier Coibion, Anton Nakov, Klaus Schmidt-Hebbel, Claudio Soto, Carl Walsh, Volker Wieland, and John Williams for useful comments and to Tiago Berriel for research assistance. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Ricardo Reis, 2009. "A Sticky-information General Equilibrium Model por Policy Analysis," Central Banking, Analysis, and Economic Policies Book Series, in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy under Uncertainty and Learning, edition 1, volume 13, chapter 8, pages 227-283 Central Bank of Chile.