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Aggregate Dynamics with Sectoral Price Stickiness Heterogeneity and Aggregate Real Shocks

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  • ALESSANDRO FLAMINI
  • IFTEKHAR HASAN

Abstract

This paper investigates the relationship between heterogeneity in sectoral price stickiness and the response of the economy to aggregate real shocks. We show that sectoral heterogeneity reduces inflation persistence for a constant average duration of price spells, and that inflation persistence can fall despite duration increases associated with increases in heterogeneity. We also find that sectoral heterogeneity reduces the persistence and volatility of interest rate and output gap for a constant price spells duration, while the qualitative impact on inflation volatility tends to be positive. A relevant policy implication is that neglecting price stickiness heterogeneity can impair the economic dynamics assessment.

Suggested Citation

  • Alessandro Flamini & Iftekhar Hasan, 2025. "Aggregate Dynamics with Sectoral Price Stickiness Heterogeneity and Aggregate Real Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 57(5), pages 1361-1380, August.
    • Handle: RePEc:wly:jmoncb:v:57:y:2025:i:5:p:1361-1380
    DOI: 10.1111/jmcb.13149
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