year ’ s bernacer prize. ricardo, i wish you continued success in the future. 1 mankiw, n. g., reis, r. and j. wolfers, ( 2004 ), “ disagreement about inflation expectations ”, nber macroeconomics annual, 18, 209 – 248. see scholar. google. com for the citations. 2 woodford, m., ( 2002 ), “ imperfect common knowledge and the effects of monetary policy ”, in “ knowledge, information and expectations in modern macroeconomics : in honour of edmund s. phelps ”, eds. p. aghion et al., princeton, new jersey : princeton university press, and sims, c. a., ( 2003 ), “ implications of rational inattention ”, journal of monetary economics, 50, 665 – 690. 3 see, for example, gorodnichenko, y. and o. coibion, ( 2015 ), “ information rigidity and the expectations formation process : a simple framework and new facts ”, american economic review, 105, 2644 – 2678. 4 mankiw, n. g. and r. reis, ( 2002 ), “ sticky information versus sticky prices : a proposal to replace the new keynesian phillips curve ”, quarterly journal of economics, 117, 1295 – 1328. 5 ball, l., mankiw, n. g. and r. reis, ( 2005 ), “ monetary policy for inattentive economies ”, journal of monetary economics, 52, 703 – 725. 6 mankiw, n. g. and r. reis, ( 2007 ), “ sticky information in general equilibrium ”, journal of the european economic association, 5, 603 – 613, and mankiw, n. g. and r. reis, ( 2006 ), “ pervasive stickiness ”, american economic review, 96, 164 – 169. 7 reis, r., ( 2006 ), “ inattentive producers ”, review of economic studies, 73, 793 – 821, and reis, r., ( 2006 ), “ inattentive consumers ”, journal of monetary economics, 53, 1761 – 1800. 8 oh, h. and r. reis, ( 2012 ), “ targeted transfers and the fiscal response to the great recession ”, journal of monetary economics, 59, s50

reassuring. on the other hand, the sticky information model suggests that, once longterm inflation expectations become de - anchored, their return to a level consistent with price stability may take time and effort on the part of the central bank. ricardo and gregory mankiw constructed and estimated a complete dynamic stochastic general equilibrium model with sticky information. 6 their dsge model features what the authors refer to as “ pervasive stickiness ” : the idea that information sets are updated sporadically, which originally applied to price - setting firms, is extended here to include consumers and workers. the resulting theory predicts gradual responses of consumption, output and wages to macroeconomic shocks, in addition to the sluggish response of prices. remarkably, sticky information is the only source of slow adjustment in the model. by contrast, the new keynesian dsge model requires multiple frictions, such as habit formation in consumption and investment adjustment costs, on top of price and wage stickiness, in order to capture the persistence in the macro data. the sticky information approach suggests that the origin of the pervasive slow adjustment in the data may be different from the sources highlighted in the new keynesian literature. in an influential pair of papers, “ inattentive producers ” and “ inattentive consumers ”, ricardo studied the decisions of agents who face the costs of acquiring, absorbing and processing information. 7 such agents rationally choose to be inattentive to news, only sporadically updating their information. the optimal frequency of updates, or the length of inattentiveness, depends on features of the economy such as the variance of shocks. upon aggregation, the economy behaves like the sticky information model of mankiw and reis. let me turn to ricardo ’ s work on the role of fiscal policy in business cycles. while a large body of literature in this area exists, much of it assumes a representative agent and focuses on government purchases or taxes. ricardo, in a joint paper with hyunseung oh, documented that during the great recession much of the increase in government expenditures across the oecd countries was in government transfers. 8 to study the effects of transfers, ricardo and his coauthor proposed a model without a representative agent or ricardian equivalence, in which transfers affect the economy because of imperfect credit markets, uncertainty and sticky information. building on this work, ricardo and alisdair mckay constructed a model to assess the role of automatic stabilisers in business cycles. 9