The Role of Sticky Information on Inflation Dynamics: Evidence from Iran
Empirical studies done in the area of price stickiness imply that the frequency of price change is high in Iran. In other words, prices change quickly after a monetary shock hits the economy. On the other hand, based on empirical studies, monetary shocks have a lagged effect on inflation in Iran. Th...
| Main Authors: | , , |
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| Format: | Article |
| Language: | fas |
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Allameh Tabataba'i University Press
2016-03-01
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| Series: | Faslnāmah-i Pizhūhish/Nāmah-i Iqtisādī |
| Subjects: | |
| Online Access: | https://joer.atu.ac.ir/article_4203_4ee8c8a0d91516babf26197079c3f434.pdf |
| _version_ | 1797375664763961344 |
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| author | Maryam Hemmaty Mehdi Pedram Hossein Tavakolian |
| author_facet | Maryam Hemmaty Mehdi Pedram Hossein Tavakolian |
| author_sort | Maryam Hemmaty |
| collection | DOAJ |
| description | Empirical studies done in the area of price stickiness imply that the frequency of price change is high in Iran. In other words, prices change quickly after a monetary shock hits the economy. On the other hand, based on empirical studies, monetary shocks have a lagged effect on inflation in Iran. This paradox can be explained by the existence of information stickiness in Iranian economy. Over the past two decades, many studies on the importance of the information stickiness and its role on the formation of expectations have emerged. Recent work on rational expectations models with informational frictions such as Mankiw and Reis (2002) have emphasized how informational rigidities can lead to policy prescriptions that differ from those under models with full-information. So, examining the existence of sticky information and understanding the degree of this kind of rigidity is very important. No empirical study has been done yet to estimate the degree of information rigidity in Iranian economy. In order to fill this gap in the literature, following the approach proposed by Khan and Zhu (2006) and Coibion (2010), We estimate the key structural parameter of sticky information Philips curve (SIPC) – i.e. the degree of information stickiness- for Iran. Based on the results, the null hypothesis of “no information stickiness” is rejected and this can be inferred as confirmation of sticky information in price-setting behavior of firms in Iran. Our estimates show that price-setting firms in the economy update their price-relevant information on average every 2 quarters. |
| first_indexed | 2024-03-08T19:27:42Z |
| format | Article |
| id | doaj.art-917e37fabf4c4a04ba55ad923112da01 |
| institution | Directory Open Access Journal |
| issn | 1735-210X 2476-6453 |
| language | fas |
| last_indexed | 2024-03-08T19:27:42Z |
| publishDate | 2016-03-01 |
| publisher | Allameh Tabataba'i University Press |
| record_format | Article |
| series | Faslnāmah-i Pizhūhish/Nāmah-i Iqtisādī |
| spelling | doaj.art-917e37fabf4c4a04ba55ad923112da012023-12-26T08:02:53ZfasAllameh Tabataba'i University PressFaslnāmah-i Pizhūhish/Nāmah-i Iqtisādī1735-210X2476-64532016-03-01166010715110.22054/joer.2016.42034203The Role of Sticky Information on Inflation Dynamics: Evidence from IranMaryam Hemmaty0Mehdi Pedram1Hossein Tavakolian2Ph.D. Candidate, Alzahra UniversityAssociate Professor, Department of Economic, Alzahra UniversityAssistant Professor, Faculty of Economics, Allameh Tabataba`i UniversityEmpirical studies done in the area of price stickiness imply that the frequency of price change is high in Iran. In other words, prices change quickly after a monetary shock hits the economy. On the other hand, based on empirical studies, monetary shocks have a lagged effect on inflation in Iran. This paradox can be explained by the existence of information stickiness in Iranian economy. Over the past two decades, many studies on the importance of the information stickiness and its role on the formation of expectations have emerged. Recent work on rational expectations models with informational frictions such as Mankiw and Reis (2002) have emphasized how informational rigidities can lead to policy prescriptions that differ from those under models with full-information. So, examining the existence of sticky information and understanding the degree of this kind of rigidity is very important. No empirical study has been done yet to estimate the degree of information rigidity in Iranian economy. In order to fill this gap in the literature, following the approach proposed by Khan and Zhu (2006) and Coibion (2010), We estimate the key structural parameter of sticky information Philips curve (SIPC) – i.e. the degree of information stickiness- for Iran. Based on the results, the null hypothesis of “no information stickiness” is rejected and this can be inferred as confirmation of sticky information in price-setting behavior of firms in Iran. Our estimates show that price-setting firms in the economy update their price-relevant information on average every 2 quarters.https://joer.atu.ac.ir/article_4203_4ee8c8a0d91516babf26197079c3f434.pdfdegree of information stickinesssticky information philips curveout of sample forecastingreal rigiditybootstrap |
| spellingShingle | Maryam Hemmaty Mehdi Pedram Hossein Tavakolian The Role of Sticky Information on Inflation Dynamics: Evidence from Iran Faslnāmah-i Pizhūhish/Nāmah-i Iqtisādī degree of information stickiness sticky information philips curve out of sample forecasting real rigidity bootstrap |
| title | The Role of Sticky Information on Inflation Dynamics: Evidence from Iran |
| title_full | The Role of Sticky Information on Inflation Dynamics: Evidence from Iran |
| title_fullStr | The Role of Sticky Information on Inflation Dynamics: Evidence from Iran |
| title_full_unstemmed | The Role of Sticky Information on Inflation Dynamics: Evidence from Iran |
| title_short | The Role of Sticky Information on Inflation Dynamics: Evidence from Iran |
| title_sort | role of sticky information on inflation dynamics evidence from iran |
| topic | degree of information stickiness sticky information philips curve out of sample forecasting real rigidity bootstrap |
| url | https://joer.atu.ac.ir/article_4203_4ee8c8a0d91516babf26197079c3f434.pdf |
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