A Tale of Two Rigidities: Sticky Prices in a Sticky-Information Environment

Macroeconomic models with microeconomic foundations allow for comparisons with macro and micro empirical evidence. This paper proposes a model wherein firms: (i) acquire information infrequently, generating sticky information (Mankiw and Reis 2002) and (ii) face menu costs, producing state-dependent sticky prices. I estimate parameters via indirect inference and show that under considerable real rigidity, sticky prices in a sticky-information environment are consistent with micro and macro evidence. Sticky prices not only help match micro data on price changes' size and durations between adjustments; they also improve the model's fit with the macro data, as embodied in an empirical Phillips curve.