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Working Paper

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

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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.

Topics
Inflation
Econometrics modeling and forecasting
11.16.2022ISSN 2573-7953 WP 22-34DOI 10.26509/frbc-wp-202234
Keywords Sticky Information, Sticky Price, Steady-state Inflation, Inflation Inertia, Bayesian VAR-GMM
JEL Classification Codes C11, C26, C52, E31

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Kurozumi, Takushi, Ryohei Oishi, and Willem Van Zandweghe. 2022. “Sticky Information Versus Sticky Prices Revisited: A Bayesian VAR-GMM Approach.” Federal Reserve Bank of Cleveland, Working Paper No. 22-34. https://doi.org/10.26509/frbc-wp-202234