Tuesday, February 24, 2009

A Sticky Information manifesto

Ricardo Reis' new NBER working paper (ungated version here) is exactly that.

The SIGE (sticky information general equilibrium) model does away with the various real rigidities generally included in DSGE (dynamic stochastic general equilibrium) models like habit formation in consumption, and various ad-hoc-ish adjustment costs with the single assumption that many people only update their information sets sporadically.

The paper outlines a full GE model, and then estimates it using Bayesian computational methods for the US and the Euro-zone.

According to Reis: "The end result is a laboratory that is
rich enough to account for the dynamics of at least …five macroeconomic series (inflation,
output, hours, interest rates, and wages), and which can be used to inform applied
monetary policy."


Anonymous said...

Oli Coibion has a paper that is skeptical of the sticky information thesis. Thanks for the link, I am interested in seeing if Reis has responded to Coibion's criticisms.

Note I came across Coibion's paper courtesy of Menzie Chinn.

Anonymous said...

I've always wondered...where did the blog's name come from?

Anonymous said...

Yes, I have responded. See footnote 8 and the paragraph it is in. Oli Coibion's finding (as well as a few others in the literature) can be interpreted as saying that one part of the SI model doesn't fit well with the data: the assumption that, once agents become attentive, they have rational expectations. This assumption is made in the model for simplicity (as well as to avoid being too radical) and it is something that I would be happy to relax (if only I knew a good way of doing it).

Ricardo Reis

Angus said...

Dan: thanks for the link. I'll read that paper over the weekend.

Austin: one word; mnemonics

Ricardo: thanks for your comment. I enjoyed your paper very much.

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