Working Paper

Sticky Information Versus Sticky Prices Revisited: A Bayesian VAR-GMM Approach

Abstract: Several Phillips curves based on sticky information and sticky prices are estimated and compared using Bayesian VAR-GMM. This method derives expectations in each Phillips curve from a VAR and estimates the Phillips curve parameters and the VAR coefficients simultaneously. Quasi-marginal likelihood-based model comparison selects a dual stickiness Phillips curve in which, each period, some prices remain unchanged, consistent with micro evidence. Moreover, sticky information is a more plausible source of inflation inertia in the Phillips curve than other sources proposed in previous studies. Sticky information, sticky prices, and unchanged prices in each period are all needed to better describe inflation dynamics.

Keywords: Sticky Information; Sticky Price; Steady-state Inflation; Inflation Inertia; Bayesian VAR-GMM;

JEL Classification: C11; C26; C52; E31;

https://doi.org/10.26509/frbc-wp-202234

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2022-11-16

Number: 22-34