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Sticky Prices and Monetary Policy: Evidence from Disaggregated U.S. Data

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Author Info

  • Jean Boivin

    () (HEC Montréal)

  • Marc P. Giannoni

    () (Columbia Business School)

  • Ilian Mihov

    () (INSEAD)

Registered author(s):

    Abstract

    This paper uses factor-augmented vector autoregressions (FAVAR) estimated using a large data set to disentangle fluctuations in disaggregated consumer and producer prices which are due to macroeconomic factors from those due to sectorial conditions. This allows us to provide consistent estimates of the effects of US monetary policy on disaggregated prices. While sectorial prices respond quickly to sector-specific shocks, we find that for a large number of price series, there is a significant delay in the response of prices to monetary policy shocks. In addition, price responses display little evidence of a “price puzzle,” contrary to existing studies based on traditional VARs. The observed dispersion in the reaction of producer prices is relatively well explained by the degree of market power, as predicted by models with monopolistic competition.

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    Bibliographic Info

    Paper provided by Center for Financial Studies in its series CFS Working Paper Series with number 2007/14.

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    Length: 72 pages
    Date of creation: 20 Feb 2007
    Date of revision:
    Handle: RePEc:cfs:cfswop:wp200714

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    Related research

    Keywords: Sticky Prices; Monetary Policy; Disaggregated Prices; Imperfect Competition; Factor-Augmented Vector Autoregression Model (FAVAR);

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    References

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    1. Peter J. Klenow & Oleksiy Kryvtsov, 2005. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," NBER Working Papers 11043, National Bureau of Economic Research, Inc.
    2. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
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    Citations

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    Cited by:
    1. Lenno Uusküla, 2008. "Limited participation or sticky prices? New evidence from firm entry and failures," Bank of Estonia Working Papers 2008-07, Bank of Estonia, revised 02 Dec 2008.
    2. Thoma, Mark, 2008. "Structural change and lag length in VAR models," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 965-976, September.
    3. Magdalena Borys & Roman Horváth & Michal Franta, 2009. "The effects of monetary policy in the Czech Republic: an empirical study," Empirica, Springer, vol. 36(4), pages 419-443, November.
    4. Philip Bunn & Colin Ellis, 2012. "How do Individual UK Producer Prices Behave?," Economic Journal, Royal Economic Society, vol. 122(558), pages F16-F34, 02.
    5. Nicholas Apergis, 2013. "The Stylized Facts of Greek Inflation: New Evidence on Persistence," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 51-71, March.
    6. Jean Boivin & Marc Giannoni, 2008. "Global Forces and Monetary Policy Effectiveness," NBER Working Papers 13736, National Bureau of Economic Research, Inc.
    7. Pang, Iris Ai Jao, 2010. "Were Fed’s active monetary policy actions necessary?," MPRA Paper 32496, University Library of Munich, Germany.
    8. Mumtaz, Haroon & Zabczyk, Pawel & Ellis, Colin, 2009. "What lies beneath: what can disaggregated data tell us about the behaviour of prices?," Bank of England working papers 364, Bank of England.
    9. Pang, Iris Ai Jao, 2010. "Forecasting Hong Kong economy using factor augmented vector autoregression," MPRA Paper 32495, University Library of Munich, Germany.
    10. Lenno Uusküla, 2008. "Liquidity and productivity shocks: A look at sectoral firm creation," Bank of Estonia Working Papers 2008-05, Bank of Estonia, revised 30 Oct 2008.

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