Heterogeneous Sticky-Information Economies
25 Pages Posted: 14 Dec 2017
Date Written: August 1, 2017
Abstract
The literature that emerged from Mankiw and Reis' (2002) proposal of sticky information as an alternative to sticky-price models has focused on economies populated with (ex-ante) identical firms. This paper analyzes the implications of heterogeneity in the degree of information stickiness among price-setting firms in different sectors for the dynamic response of the economy to various shocks. I compare multisector sticky-information models with otherwise identical one-sector economies that feature the same frequency of information updating. I find that the effects of such shocks on the output gap - the difference between actual output and the output level that would prevail in the absence of information frictions - are larger in heterogeneous economies.
Keywords: sticky-information, heterogeneity
JEL Classification: E3
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