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Sectoral output effects of monetary policy: do sticky prices matter?

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  • Henkel, Lukas

Abstract

This paper studies the role of sticky prices for the monetary transmission mechanism, using disaggregated industry-level data from 205 US industries. There is substantial heterogeneity in the output responses of industries to monetary policy surprises. I show that an industry's response to monetary policy surprises is systematically related to an industry's degree of price stickiness as measured by the average frequency of price adjustment. The size of the differential reaction is economically large and statistically significant. The results suggest that sticky prices play an important role in the transmission of monetary policy, consistent with New Keynesian macroeconomic models. This result is robust to the inclusion of further industry-level control variables. JEL Classification: E31, E32

Suggested Citation

  • Henkel, Lukas, 2020. "Sectoral output effects of monetary policy: do sticky prices matter?," Working Paper Series 2473, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20202473
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    Cited by:

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    2. Erwan Gautier & Magali Marx & Paul Vertier, 2022. "How do Gasoline Prices Respond to a Cost Shock ?," Working papers 861, Banque de France.

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    More about this item

    Keywords

    monetary transmission mechanism; sticky prices;

    JEL classification:

    • 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

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