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Sectoral Price Facts in a Sticky-Price Model

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  • Carlos Carvalho

    ()
    (PUC-Rio)

  • Jae Won Lee

    ()
    (Rutgers University)

Abstract

We develop a multi-sector sticky-price DSGE model that can endogenously deliver differential responses of prices to aggregate and sectoral shocks. Input-output production linkages induce across-sector pricing complementarities that contribute to a slow response of prices to aggregate shocks. In turn, input-market segmentation at the sectoral level induces within-sector pricing substitutability, which helps the model deliver a fast response of prices to sector-specific shocks. We estimate the model using aggregate and sectoral price and quantity data for the U.S., and find that it accounts extremely well for a range of sectoral price facts.

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 201133.

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Length: 20 pages
Date of creation: 04 Nov 2011
Date of revision:
Handle: RePEc:rut:rutres:201133

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Keywords: heterogeneity; price stickiness; sectoral data; FAVAR; sectoral shocks;

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References

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  1. Basu, S., 1993. "Intermediate Goods and Business Cycles: Implications for Productivity and Welfare," Papers, Michigan - Center for Research on Economic & Social Theory 93-23, Michigan - Center for Research on Economic & Social Theory.
  2. Jean Boivin & Marc P. Giannoni & Ilian Mihov, 2009. "Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data," American Economic Review, American Economic Association, vol. 99(1), pages 350-84, March.
  3. BOUAKEZ, Hafed & CARDIA Emanuela & RUGE-MURCIA, Francisco, 2005. "The Transmission of Monetary Policy in a Multi-Sector Economy," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 2005-16, Universite de Montreal, Departement de sciences economiques.
  4. Philippe Andrade & Marios Zachariadis, 2011. "Global Versus Local Shocks in Micro Price Dynamics," University of Cyprus Working Papers in Economics 10-2011, University of Cyprus Department of Economics.
  5. Ball, Laurence & Romer, David, 1990. "Real Rigidities and the Non-neutrality of Money," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 183-203, April.
  6. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 6(3), pages 1-58, December.
  7. Ariel Burstein & Christian Hellwig, 2007. "Prices and Market Shares in a Menu Cost Model," NBER Working Papers 13455, National Bureau of Economic Research, Inc.
  8. Mirko Wiederholt & Emanuel Moench & Bartosz Maćkowiak, 2009. "Sectoral Price Data and Models of Price Setting," 2009 Meeting Papers, Society for Economic Dynamics 666, Society for Economic Dynamics.
  9. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  10. Maral Shamloo, 2010. "Price Setting in a Model with Production Chains," IMF Working Papers 10/82, International Monetary Fund.
  11. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(4), pages 1415-1464, November.
  12. Altissimo, Filippo & Mojon, Benoit & Zaffaroni, Paolo, 2009. "Can aggregation explain the persistence of inflation?," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 231-241, March.
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Citations

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Cited by:
  1. Carlos Carvalho & Fernanda Nechio, 2013. "Factor specificity and real rigidities," Working Paper Series 2013-31, Federal Reserve Bank of San Francisco.
  2. Marios Zachariadis, 2012. "Global Versus Local Shocks in Micro Price Dynamics," 2012 Meeting Papers, Society for Economic Dynamics 66, Society for Economic Dynamics.
  3. Hubrich, Kirstin & Marcellino, Massimiliano & Beck, Günter W., 2011. "On the importance of sectoral and regional shocks for price-setting," Working Paper Series 1334, European Central Bank.
  4. BOUAKEZ, Hafedh & CARDIA, Emanuela & RUGE-MURCIA, Francisco J., 2009. "Sectoral Price Rigidity and Aggregate Dynamics," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 2009-01, Universite de Montreal, Departement de sciences economiques.
  5. De Graeve, Ferre & Walentin, Karl, 2011. "Refining Stylized Facts from Factor Models of Inflation," Working Paper Series 254, Sveriges Riksbank (Central Bank of Sweden), revised 01 Oct 2013.
  6. Jae Won Lee, 2011. "Aggregate Implications of Heterogeneous Households in a Sticky-Price Model," Departmental Working Papers, Rutgers University, Department of Economics 201132, Rutgers University, Department of Economics.
  7. Kaufmann, Daniel & Lein, Sarah M., 2013. "Sticky prices or rational inattention – What can we learn from sectoral price data?," European Economic Review, Elsevier, vol. 64(C), pages 384-394.
  8. Neil Mehrotra & Dmitriy Sergeyev, 2013. "Sectoral Shocks, the Beveridge Curve and Monetary Policy," 2013 Meeting Papers, Society for Economic Dynamics 919, Society for Economic Dynamics.
  9. Emi Nakamura & Jón Steinsson, 2013. "Price Rigidity: Microeconomic Evidence and Macroeconomic Implications," NBER Working Papers 18705, National Bureau of Economic Research, Inc.
  10. Manoj Atolia & Ryan Chahrour, 2013. "Intersectoral Linkages, Diverse Information, and Aggregate Dynamics in a Neoclassical Model," Boston College Working Papers in Economics 832, Boston College Department of Economics.

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