How well do the sticky price models explain the disaggregated price responses to aggregate technology and monetary policy shocks?
AbstractThis paper documents empirically and analyzes theoretically the responses of disaggregated prices to aggregate technology and monetary policy shocks. Based on the price data of US personal consumption expenditure, we find that disaggregated price responses have features across shocks and across sectors that are difficult to explain using standard multi-sector sticky price models. In terms of shocks, a substantial fraction of disaggregated prices initially rise in response to a contractionary monetary policy shock, while most prices fall immediately in response to an aggregate technological improvement. In terms of sectors, the disaggregated price responses are correlated weakly with the frequency of price changes. To reconcile these observations, we extend the standard model. We find that the cost channel of monetary policy and cross-sectional heterogeneity in real rigidity are possible avenues in accounting for these facts.
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Bibliographic InfoPaper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 10-E-22.
Date of creation: Sep 2010
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Disaggregated Prices; Technology Shocks; Monetary Policy Shocks; Sticky Price Models;
Other versions of this item:
- Jouchi Nakajima & Nao Sudo & Takayuki Tsuruga, 2010. "How Well Do the Sticky Price Models Explain the Disaggregated Price Responses to Aggregate Technology and Monetary Policy Shocks?," Discussion papers e-10-007, Graduate School of Economics and Faculty of Economics, Kyoto University.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- F52 - International Economics - - International Relations and International Political Economy - - - National Security; Economic Nationalism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-CBA-2010-10-02 (Central Banking)
- NEP-MAC-2010-10-02 (Macroeconomics)
- NEP-OPM-2010-10-02 (Open Economy Macroeconomic)
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- Christiane Baumeister & Philip Liu & Haroon Mumtaz, 2012.
"Changes in the Effects of Monetary Policy on Disaggregate Price Dynamics,"
12-13, Bank of Canada.
- Baumeister, Christiane & Liu, Philip & Mumtaz, Haroon, 2013. "Changes in the effects of monetary policy on disaggregate price dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 543-560.
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