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Nominal Rigidity and the Idiosyncratic Origin of Aggregate Fluctuations

Author

Listed:
  • Raphael Schoenle

    (Brandeis University)

  • Michael Weber

    (University of Chicago)

  • Ernesto Pasten

    (Central Bank of Chile)

Abstract

We study the aggregate propagation of idiosyncratic, sectoral shocks in a multi-sector new-Keynesian model with intermediate inputs featuring sectoral heterogeneity in price stickiness, sectoral GDP, and input-output linkages. Heterogeneity of price rigidity distorts the "granular" effect of the fat-failed distribution of sectors' size as well as the "network" effect of the centrality of some sectors in the production network. This distortion involves the strength of the aggregate volatility generated by sectoral shocks as well as the identity of the most important sectors. The granular and the network effects may in fact be completely irrelevant while the empirical distribution of price stickiness may generate by itself sizable aggregate volatility from sectoral shocks. We calibrate our model to 350 sectors using US data to quantify the strenght and interaction of "granular", "network" and "frictional" sources of the aggregate propagation of sectoral shocks.

Suggested Citation

  • Raphael Schoenle & Michael Weber & Ernesto Pasten, 2016. "Nominal Rigidity and the Idiosyncratic Origin of Aggregate Fluctuations," 2016 Meeting Papers 1473, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1473
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    Cited by:

    1. Michael Weber & Ali Ozdagli, 2016. "Monetary Policy Through Production Networks: Evidence from the Stock Market," 2016 Meeting Papers 148, Society for Economic Dynamics.

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