BoE paper studies information in sticky and flexible prices

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A working paper, published by the Bank of England on July 20, attempts to empirically establish the information content of flexible and sticky prices.

The authors, Stephen Millard and Tom O'Grady, use price adjustment data from 1997–2010, finding a correlation between the output gap and flexible prices that is absent for sticky prices. The paper suggests the evidence for the information content of sticky prices is more 'tentative'. The researchers then apply this data in a general equilibrium

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