Sticky prices vs. sticky information

Abstract

This paper compares sticky-price and sticky-information Phillips curves empirically considering inflation dynamics in eleven countries (the G7 and Scandinavia). We evaluate the models` abilities to match empirical second moments of inflation. Although overall model performance is similar, there is a strong systematic pattern in model performance by moment type. Sticky prices match unconditional moments of inflation dynamics clearly better while sticky information is considerably more successful in matching co-movements of inflation with demand.