We study the interaction between dispersed and sticky information by assuming that firms receive private noisy signals about the state in an otherwise standard model of price setting with sticky information. We compute the unique equilibrium of the game induced by the firms’ pricing decisions and derive the resulting Phillips curve. The main effect of dispersion is to magnify the immediate impact of a given shock when the degree of stickiness is small. Its effect on persistence is minor: even when information is largely dispersed, a substantial amount of informational stickiness is needed to generate persistence in aggregate prices and inflation.

Macroeconomic Dynamics V 24, P 747-773, 2020

Vinicius Nascimento Carrasco, Waldyr Dutra Areosa, Marta Baltar Moreira Areosa.

https://doi.org/10.1017/S1365100518000470