Sticky Information Research Articles

Lumpy Investment in Sticky Information General Equilibrium

In this paper, I introduce lumpy micro-level capital adjustment into a sticky information general equilibrium model. Lumpy adjustment arises because of inattentiveness in capital investment decisions instead of the more common assumption of non-convex adjustment costs. The model features inattentiveness as the only source of stickiness. I find that the model with lumpy investment yields business cycle dynamics which differ substantially from those of an otherwise identical model with frictionless investment and are much more consistent with the empirical evidence. These results therefore strengthen the case in favor of the relevance of microeconomic investment lumpiness for the business cycle.

Rational inattentiveness in a forecasting experiment

While standard theory assumes rational, optimizing agents under full information, the latter is rarely found in reality. Information has to be acquired and processed—both involving costs. In rational-inattentiveness models agents update their information set only when the benefit outweighs the information cost. We test the rational-inattentiveness model in a controlled laboratory environment. Our design is a forecasting task with costly information and a clear cost–benefit structure. While we find numerous deviations from the model predictions on the individual level, the aggregate results are consistent with rational-inattentiveness and sticky information models rejecting simpler behavioral heuristics.

Reverse Kalman Filtering US Inflation with Sticky Professional Forecasts

We provide a new way to filter US inflation into trend and cycle components, based on extracting long-run forecasts from the Survey of Professional Forecasters. We operate the Kalman filter in reverse, beginning with observed forecasts, then estimating parameters, and then extracting the stochastic trend in inflation. The trend-cycle model with unobserved components is consistent with numerous studies of US inflation history and is of interest partly because the trend may be viewed as the Fed’s evolving inflation target or long-horizon expected inflation. The sluggish reporting attributed to forecasters is consistent with evidence on mean forecast errors. We find considerable evidence of inflation-gap persistence and some evidence of implicit sticky information. But statistical tests show we cannot reconcile these two widely used perspectives on US inflation forecasts, the unobserved-components model and the sticky-information model.

Inattentive professional forecasters

Using the ECB Survey of Professional Forecasters to characterize expectations at the micro-level, we emphasize two new facts: forecasters (i) fail to systematically update their forecasts and (ii) disagree even when updating. It is moreover found that forecasters have predictable forecast errors. These facts are qualitatively supportive of recent models of inattention and suggest a setup where agents imperfectly process information due to both sticky information à la Mankiw–Reis, and noisy information à la Sims. However, building and estimating such an expectation model, we find that it cannot quantitatively replicate the error and disagreement observed in the data.

News on Inflation and the Epidemiology of Inflation Expectations

This paper examines the nexus between news coverage on inflation and households' inflation expectations. In doing so, we test the epidemiological foundations of the sticky information model (Carroll, 2003, 2006). We use both aggregate and household-level data from the Survey Research Center at the University of Michigan. We highlight a fundamental disconnection between news on inflation, consumers' frequency of expectation updating and the accuracy of their expectations. Our evidence provides at best weak support to the epidemiological framework, as most of the consumers who update their expectations do not revise them towards professional forecasters' mean forecast.

When are GDP forecasts updated? Evidence from a large international panel

Based on a large international panel of surveyed GDP forecasts I analyze the frequency of forecast revisions and the factors that influence the likelihood of forecast revisions. I find that each month on average 40%–50% of forecasters revise their forecasts. In addition, I find that the likelihood of forecast revisions significantly depends on a number of factors such as the forecast horizon, the business-cycle, or strategic interactions between forecasters. My results suggest that a realistic modeling of expectations/forecasts of agents has to take into account cross-sectional heterogeneity, strategic interaction between agents, and effects of the economic environment—features that existing models such as the sticky information framework are missing.

Sticky information and inflation persistence: evidence from the U.S. data

This paper analyzes the relationship between sticky information and inflation persistence by implementing a novel approach to estimate the Sticky Information Phillips Curve (SIPC). The degree of sticky information is estimated using a GMM estimator that matches the covariance between inflation and the shocks that affect firms’ pricing decisions. Although the SIPC contains an infinite number of terms, the theoretical covariances derived from the model have finite dimensions, thus allowing the estimation of the structural parameters without any truncation of the original model. This work shows that sticky information is significantly different if the model is estimated by matching inflation persistence or inflation variance. Previous empirical literature found that the SIPC model does not provide an accurate representation of the US postwar inflation. This paper qualifies such a finding by demonstrating that the SIPC is able to match the inflation persistence only at the cost of mismatching the inflation variance.

Sticky Information Models in Dynare

Macroeconomic models with sticky information include an infinite number of lagged expectations. Several authors have developed specialized solutions algorithms to solve these models under rational expectations. We demonstrate that it is also possible to implement this class of models in Dynare—a widely used software package for solving dynamic stochastic general equilibrium (DSGE) models. Using the Dynare macro language one can easily construct and change the required large number of lagged expectation terms. We assess the accuracy of simulations run with different truncation points for the lagged expectations terms and find that the solution is reasonably precise even for moderate truncation points.

Reducing Costs of Knowledge Transfer in Tourism Development using Historical Materials

Recently, discovering local resources and utilizing them have been underway for the purpose to revitalize regional economies. The authors have conducted some activities for regional activation using historical materials such as old documents and maps. For these activities historians play an important role to discover and utilize local resources from historical materials. The cost of transferring historians’ knowledge about such resources to tour developers is high. In this study, a tour developer who is also a volunteer tour guide designed two tour courses featuring local historical material with the aid of a proposed information system. They clarify the role of the information system and the factors of reducing the costs of knowledge transfer in tourism development using historical materials from the view points of the sticky information.

On the role of heuristics—Experimental evidence on inflation dynamics

We run an experiment where groups of six subjects must set prices in a non-stationary macroeconomic environment, where prices are complements. The exogenous variable, a business indicator, is common knowledge and prices are flexible, disregarding sticky prices or sticky information. In a first treatment subjects insignificantly corrected for past errors, which implies that history plays a role for determining current prices. By reporting the business indicator in a simpler form the second treatment tacitly offered a heuristic for setting prices. This option was widely taken, bringing about an excess response to the business indicator and a significant deviation from equilibrium even in the long run. In a third treatment with staggered pricing we observe that subjects look only one round into the future but not further ahead, contrary to theoretical predictions. Our findings suggest that monetary transmission may be impaired due to what we label sticky reasoning, the failure or unwillingness to iteratively delete dominated strategies.

Information Stickiness in General Equilibrium and Endogenous Cycles

Abstract Traditionally, observed fluctuations in aggregate economic time series have been mainly modeled as being the result of exogenous disturbances. A better understanding of macroeconomic phenomena, however, surely requires looking directly at the relations between variables that may trigger endogenous nonlinearities. Several attempts to justify endogenous business cycles have appeared in the literature in the last few years, involving many types of different settings. This paper intends to contribute to such literature by investigating how we can modify the well-known information stickiness macro model, through the introduction of a couple of reasonable new assumptions, in order to trigger the emergence of endogenous fluctuations.

Social Network Analysis: Foundations and Frontiers on Advantage

We provide an overview of social network analysis focusing on network advantage as a lens that touches on much of the area. For reasons of good data and abundant research, we draw heavily on studies of people in organizations. Advantage is traced to network structure as a proxy for the distribution of variably sticky information in a population. The network around a person indicates the person's access and control in the distribution. Advantage is a function of information breadth, timing, and arbitrage. Advantage is manifest in higher odds of proposing good ideas, more positive evaluations and recognition, higher compensation, and faster promotions. We discuss frontiers of advantage contingent on personality, cognition, embeddedness, and dynamics.

Unstick Tsugoes for Innovative Interaction of Market Stakeholders

Sticky information, has been known to well explain the localization of ideas, i.e., that information in the brain of either inventor in the producing/selling side or consumers in the buying/using side of products do not always prevail in the market. This sometimes disturbs the process of innovation. In this paper, the authors break sticky information into sticky tsugoes, where a tsugo is a triple of the intention and two types of constraints behind each stakeholder’s acting/planning. The authors studied cases of Innovators Market Game ® - a serious game for innovative workshop involving stakeholders in the market, to visualize the interaction of the tsugoes of those stakeholders, in the form of Human-Tsugo Network (HTN) by using KeyGraph™. In the results, links between inventors’ and consumers’ tsugoes in HTNs correspond with the performance of innovative communications more finely than sheer KeyGraph visualizing the relations among words in the dialogue.

Discussion

Discussion

Information Rigidities in Economic Growth Forecasts: Evidence from a Large International Panel

We examine the behavior of forecasts for real GDP growth using a large panel of individual forecasts from 30 advanced and emerging economies during 1989–2010. Our main findings are as follows. First, our evidence does not support the validity of the sticky information model (Mankiw and Reis, 2002) for describing the dynamics of professional growth forecasts. Instead, the empirical evidence is more in line with implications of ―noisy‖ information models (Woodford, 2002; Sims, 2003). Second, we find that information rigidities are more pronounced in emerging economies than advanced economies. Third, there is evidence of nonlinearities in forecast smoothing. It is less pronounced in the tails of the distribution of individual forecast revisions than in the central part of the distribution.

Sticky Information Models in Dynare

Macroeconomic models with sticky information include an infinite number of lagged expectations. Several authors have developed specialized solutions algorithms to solve these models under rational expectations. We demonstrate that it is also possible to implement this class of models in Dynare – a widely used software package for solving dynamic stochastic general equilibrium (DSGE) models. Using the Dynare macro language one can easily construct and change the required large number of lagged expectation terms. We assess the accuracy of simulations run with different truncation points for the lagged expectations terms and find that the solution is reasonably precise even for moderate truncation points.

Information Rigidities in Economic Growth Forecasts: Evidence from a Large International Panel

We examine the behavior of forecasts for real GDP growth using a large panel of individual forecasts from 30 advanced and emerging economies during 1989–2010. Our main findings are as follows. First, our evidence does not support the validity of the sticky information model (Mankiw and Reis, 2002) for describing the dynamics of professional growth forecasts. Instead, the empirical evidence is more in line with implications of noisy information models (Woodford, 2002; Sims, 2003). Second, we find that information rigidities are more pronounced in emerging economies than advanced economies. Third, there is evidence of nonlinearities in forecast smoothing. It is less pronounced in the tails of the distribution of individual forecast revisions than in the central part of the distribution.

Gasoline Prices, Fuel Economy, and the Energy Paradox

Policymakers often assert that consumers undervalue future gasoline costs when they buy automobiles. We test this by measuring whether relative prices of vehicles with different fuel economy ratings fully adjust to variation in gasoline prices. Vehicle prices move as if consumers are indifferent between $1.00 in discounted future gas cost and $0.76 in vehicle purchase price. We show how corrections for endogenous market shares and utilization, measurement error, and different gasoline price forecasts affect the results. We also provide unique evidence of sticky information: vehicle markets respond to changes in gasoline prices with up to a six-month delay.

Heterogeneous Price-Setting Behavior and Aggregate Dynamics: Some General Results

We analyze the effects of heterogeneity in price setting behavior in time-dependent sticky price and sticky information models characterized by quite general adjustment hazard functions. In a large class of models that includes the most commonly used price setting specifications, heterogeneity leads monetary shocks to have larger real effects than in one-sector economies with the same frequency of adjustments. Quantitatively, the effects of heterogeneity in models calibrated to match the recent empirical evidence on pricing behavior are large, even in the absence of strategic complementarity in price setting. We find that the degree of monetary non-neutrality in the calibrated heterogeneous economies can be as large as in an otherwise identical one-sector economy with roughly three times more nominal rigidity.

Household Inflation Expectations: Information Gathering, Inattentive or ‘Stubborn’?

The purpose of this paper is to investigate the micro foundations of how non-experts’ (or general public) form inflation expectations. Using a unique dataset we investigate the range of near rational inflation expectations. An important contribution to understanding how non-experts form their expectations is ‘sticky information expectations’, specifically the epidemiological model. Our analysis uses an extended version of the epidemiological model. We find that the general public are best depicted as those who are either information gathers or inattentive. In addition, the inattentive general public can be either forward-looking or ‘stubborn’, that is persistent.