Standard solution methods for linear stochastic models with rational expectations presuppose a time-invariant structure. Consequently, credible announcements that entail future changes of the structure cannot be handled by standard solution methods. This paper develops the solution for linear...

This paper attempts to reconcile the high estimates of price stickiness from macroeconomic estimates of a New-Keynesian Phillips curve (NKPC) with the lower values obtained from surveys of firms' pricing behaviour. This microeconomic evidence also suggests that the frequency with which firms...