Attentiveness cycles: synchronized behavior and aggregate fluctuations

• Main Author: Orlando Gomes
• Format: Article
• Language: English
• Published: Fundação Getúlio Vargas 2012-09-01
• Series: Revista Brasileira de Economia
• Subjects: Sticky-information; Heterogeneous agents; Complex systems; Synchronized behavior; Phillips curve; Expectations; Endogenous Fluctuations
• Online Access: http://www.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402012000300001&lng=en&tlng=en

A sticky-information macroeconomic model is developed in order to analyze the behavior of the time trajectories of the inflation rate and of the output gap, when disturbed by eventual monetary policy shocks. In opposition to what is typical in the literature on this subject, different paces on information updating explicitly lead to a setting with interaction among heterogeneous agents. Specifically, we consider firms with different information updating frequencies whose behavior implies the emergence of attentiveness cycles of possibly large lengths; within these cycles we deduct a differently shaped Phillips curve for each time period. Systematic changes on the form of the aggregate supply relation will be the engine that triggers a sluggish response to shocks and the eventual persistence of business fluctuations.