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Examining Sectoral Co-Movement in Estimated Nominal Rigidities Models

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  • Lee Junhee

    ()
    (Yeungnam University)

Abstract

Recently, Barsky et al. (2007) found that a sticky-price model does not generate sectoral co-movement and that the propagation mechanism is weak in response to monetary shocks if prices in the durable goods sector are significantly flexible, which raises a co-movement problem in sticky-price models. In this paper, we estimate sticky-price models with both durable and nondurable goods sectors in order to examine sectoral price stickiness and co-movement using actual data. The estimation results show that prices in both sectors are relatively sticky and the co-movement problem does not occur in the usual settings. We find, however, that the co-movement problem may occur when we introduce persistent price-markup shocks in a sticky-price model. We also estimate nominal rigidities models with sticky wages as well as sticky prices and find that sticky wages are helpful in explaining sectoral co-movement in addition to sticky prices.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 9 (2009)
Issue (Month): 1 (May)
Pages: 1-22

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Handle: RePEc:bpj:bejmac:v:9:y:2009:i:1:n:19

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Cited by:
  1. BOUAKEZ, Hafedh & CARDIA, Emanuela & RUGE-MURCIA, Francisco J., 2008. "Durable Goods, Inter-Sectoral Linkages and Monetary Policy," Cahiers de recherche 2008-10, Universite de Montreal, Departement de sciences economiques.

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