Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics?

Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics?

The canonical inflation specification in sticky-price rational expectations models (the new-Keynesian Phillips curve) is often criticized on the grounds that it fails to account for the dependence of inflation on its own lags. In response, many recent studies have employed a “hybrid” sticky-price specification in which inflation depends on a weighted average of lagged and expected future values...

Sticky Expectations and Consumption Dynamics

Rational Expectations and Inflation Third Edition

this collection of essays uses the lens of rational expectations theory to examine how governments anticipate and plan for inflation, and provides insight into the pioneering research for which thomas sargent was awarded the 2011 nobel prize in economics. rational expectations theory is based on the simple premise that people will use all the information available to them in making economic dec...

How well does sticky information explain the dynamics of inflation, output, and real wages?

This paper finds that a model with sticky information is less successful than a standard model featuring nominal rigidities, inflation indexation, and habits in generating the dynamics triggered by technology shocks, as estimated by a vector autoregression using U.S. macroeconomic data. The real wage responses after a permanent increase in productivity clearly favor the standard model. The stic...

Evaluating Calvo-Style Sticky Price Models∗

This paper assesses the empirical performance of Calvo-style sticky goods price models. We argue that Calvo-style models in which firms update non-reoptimized prices to lagged inflation are consistent with the aggregate data in a statistical sense. We then investigate whether these models imply plausible degrees of inertia in price setting behavior by firms. We find that these model do, but onl...