In monetary policy strategies geared towards maintaining price stability conditional and unconditional forecasts of inflation and output play an important role. In this paper we illustrate how modern sticky-price dynamic stochastic general equilibrium (DSGE) models, estimated using Bayesian...

Recent research in macroeconomics has sought to develop a tractable form of heterogeneity in attempting to model sluggishness of response of the economy consistent with data. Sims (2003) argued that limited information processing was a promising avenue for understanding pervasive stickiness....