Information Frictions and Monetary Policy

@article{3059,
   author = {Matějka, Filip},
   article_location = {Praha},
   article_number = {1},
   keywords = {nominal rigidity; information frictions; monetary economics},
   language = {eng},
   issn = {1802-792X},
   journal = {ACTA VŠFS},
   title = {Information Frictions and Monetary Policy},
   volume = {2012},
   year = {2012}
}

TY  - JOUR
ID  - 3059
AU  - Matějka, Filip
PY  - 2012
TI  - Information Frictions and Monetary Policy
JF  - ACTA VŠFS
VL  - 2012
IS  - 1
SP  - 7-24
EP  - 7-24
PB  - Vysoká škola finanční a správní, o.p.s.
SN  - 1802792X
KW  - nominal rigidity
KW  - information frictions
KW  - monetary economics
N2  - Real effects of monetary policy depend crucially on the nature of nominal rigidities. These rigidities are typically modelled as sticky prices with explicit assumptions on either frequency of price adjustments (Calvo-style models) or on the cost of adjustment (menu cost models). However, recent empirical work cast doubts on these workhorses of standard New Keynesian models. This paper discusses another approach to nominal frictions, which is based on the assumption that agents face difficulties processing information. If, for instance, price-setters learn about an interest rate cut with a delay, then their price also responds sluggishly. This rigidity implies positive temporary effects on output and unemployment. We conclude that models based on information frictions can account for several empirical facts other model have difficulties reconciling with, such as sluggish responses of both real and nominal variables, frequent but staggered price changes or a steeper Phillips curve and higher profit losses with more volatile environments. Moreover, rational inattention provides important implications for policy.
ER  - 

MATĚJKA, Filip. Information Frictions and Monetary Policy. \textit{ACTA VŠFS}. Praha: Vysoká škola finanční a správní, o.p.s., 2012, vol.~2012, No~1, p.~7-24. ISSN~1802-792X.