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J. Mon. Ec. 2015, 10(1): 1-22 Back to browse issues page
Threshold Effects in Sticky Information Philips Curve: Evidence from Iran
Maryam Hematy 1, Mehdi Pedram2
1- Monetary and Banking Research Institute (MBRI)
2- Alzahra University
Abstract:   (1123 Views)

During the last decade, several studies have argued that sticky information model proposed by Mankiw and Reis (2002), in which firms update their information occasionally rather than instantaneously, explains some stylized facts about the inflation dynamics. Sticky information pricing model successfully captures the sluggish movement of aggregate prices in response to monetary policy shocks. Despite the importance of sticky information, no empirical studies have been done yet to estimate sticky information Philips Curve (SIPC) and its key parameter - the degree of information rigidity - in Iran. This paper is the first attempt to estimate the degree of information stickiness in Iran using the two stage empirical approach proposed by Khan and Zhu (2006). Having the correct structural parameter allows a better understanding of the dynamics of inflation. Results show that the average duration of information stickiness ranges from 3.2 to 4 quarters in Iran. In addition, the existence of threshold effects in SIPC is also tested in this paper. Based on the estimation of TAR model over 2002Q2- 2015Q1, firms update information faster when inflation is higher. This evidence suggests that firms are more aware of macroeconomic conditions when inflation is higher; that is, missing information during high inflation periods is costly.

JEL Classifications: E31, E37, C53, D84

Keywords: Degree of information stickiness, Sticky information Philips Curve, Out of sample forecasting, Threshold model, Bootstrap
Full-Text [PDF 370 kb]   (557 Downloads)    
Type of Study: Research | Subject: Macroeconomics
Received: 2015/12/29 | Accepted: 2016/06/7
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Hematy M, Pedram M. Threshold Effects in Sticky Information Philips Curve: Evidence from Iran. J. Mon. Ec.. 2015; 10 (1) :1-22
URL: http://jme.mbri.ac.ir/article-1-158-en.html

Volume 10, Issue 1 (Winter 2015) Back to browse issues page
Journal of Money and Economy Journal of Money And Economy
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