Working Paper: NBER ID: w14732
Authors: Ricardo Reis
Abstract: 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.
Keywords: No keywords provided
JEL Codes: E10; E30; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inattentiveness of agents (L85) | gradual adjustments of macroeconomic variables to shocks (F41) |
| inattentiveness of agents (L85) | consumer behavior, firm pricing, and labor market dynamics (D22) |
| monetary policy shocks (E39) | inflation (E31) |
| productivity shocks (O49) | real wages (J31) |
| productivity shocks (O49) | hours worked (J22) |
| aggregate demand shocks (E00) | output growth (O40) |