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Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data

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  • Jean Boivin
  • Marc P. Giannoni
  • Ilian Mihov

Abstract

This paper shows that the recent evidence that disaggregated prices are volatile does not necessarily challenge the hypothesis of price rigidity used in a large class of macroeconomic models. We document the effect of macroeconomic and sectoral disturbances by estimating a factor-augmented vector autoregression using a large set of macroeconomic indicators and disaggregated prices. Our main finding is that disaggregated prices appear sticky in response to macroeconomic and monetary disturbances, but flexible in response to sectorspecific shocks. The observed flexibility of disaggregated prices reflects the fact that sector-specific shocks account on average for 85 percent of their monthly fluctuations. (JEL E13, E31, E32, E52)

Suggested Citation

  • 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 350-384, March.
  • Handle: RePEc:aea:aecrev:v:99:y:2009:i:1:p:350-84
    Note: DOI: 10.1257/aer.99.1.350
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    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • 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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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