A tale of two rigidities
Subtitle: sticky prices in a sticky-information environment
By: Edward S. Knotek
Contributors: Federal Reserve Bank of Kansas City. Research Division
Series: RWP -- 06-15
Publisher: Research Division, Federal Reserve Bank of Kansas City
Published: 2006
Place of publication: Kansas City [Mo.]
Language: eng
Format: [electronic resource] :
Description: Macroeconomic models with microeconomic foundations face a difficult task: they must be consistent with facts both "large" and "small." This paper proposes a model that combines two strands of the literature on stickiness in order to match both sets of facts. (1) Firms acquire information infrequently, as in Mankiw and Reis (2002), resulting in sticky information. (2) Firms face heterogeneous, fixed menu costs which they must pay to change prices, leading to state-dependent sticky prices at the micro level. I estimate key structural parameters and show that a model of sticky prices in a sticky-information environment is consistent with both micro and macro evidence.
Notes: Title from PDF file (viewed on Jan. 4, 2007).

"December 2006."

Includes bibliographical references.

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