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Industrial Transformation, Heterogeneity in Price Stickiness, and the Great Moderation

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  • Flamini, Alessandro
  • Ascari, Guido
  • Rossi, Lorenza

Abstract

Since the ’80s the volatility of output growth and inflation experienced by several industrialized countries has remarkably declined, what has been dubbed the “Great Moderation”. Various explanations have been proposed and likely all play some role. This paper shows that when an industrial transformation reduces the weight of the manufacturing sector relative to the services sector, the presence of sectoral heterogeneity in price stickiness leads to a significant decline in the volatility of inflation and output growth.

Suggested Citation

  • Flamini, Alessandro & Ascari, Guido & Rossi, Lorenza, 2012. "Industrial Transformation, Heterogeneity in Price Stickiness, and the Great Moderation," Dynare Working Papers 24, CEPREMAP.
    • Handle: RePEc:cpm:dynare:024
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    References listed on IDEAS

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    More about this item

    Keywords

    Great Moderation; sectoral asymmetries; price stickiness; new Keynesian model; persistence; volatility;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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