Publication

This paper compares two alternative ways to model the dynamics of aggregate inflation in response to monetary policy changes and other shocks. The author uses a Dynamic Stochastic General Equilibrium (DSGE) model with sticky information and compares it to Calvo sticky prices. He finds that both do equally well in delivering the conventional view that, first, inflation reacts gradually and with delay to a monetary policy shock; second, announced and credible disinflations are contractionary,;and third, inflation accelerates with vigorous economic activity.