Great recession and the informational shifts: new evidence from sticky information Phillips curve

ABSTRACT

We utilize the nonlinear least squares (NLLS) and seemingly unrelated regression (SUR) techniques to estimate information stickiness parameter λ for the USA. We find that λ values appeared in a somewhat humped shape or inverted U pattern during the financial crisis. Prior to the financial crisis (1978.Q1-2006.Q4), λ was around 0.3. However, when the sample is extended to include the financial crisis period (1978.Q1-2011.Q4), λ increased to around 0.6. Results imply that during the financial crisis many firms became flexible and efficient and used updated information to set optimal prices.

KEYWORDS:

• Financial crisis
• sticky information Phillips curve
• stickiness parameter

JEL CLASSIFICATION:

• C5
• E2

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ These results are not reported for brevity.