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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].
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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 

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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.

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