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Sectoral price facts in a sticky-price model

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Abstract

We develop a multi-sector sticky-price DSGE (dynamic stochastic general equilibrium) 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. Estimating the factor-augmented vector autoregression specification of Boivin, Giannoni, and Mihov (2009) on data generated by a parameterized version of our model, we find results that resemble what they obtain with disaggregated data for the U.S. economy. We then employ Bayesian methods to estimate the model using aggregate and sectoral data, and find that it accounts extremely well for a wide range of sectoral price facts.

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  • Carlos Carvalho & Jae Won Lee, 2011. "Sectoral price facts in a sticky-price model," Staff Reports 495, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:495
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    2. Mark Gertler & John Leahy, 2008. "A Phillips Curve with an Ss Foundation," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 533-572, June.
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    6. Hafedh Bouakez & Emanuela Cardia & Francisco J. Ruge-Murcia, 2009. "The Transmission Of Monetary Policy In A Multisector Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(4), pages 1243-1266, November.
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    13. Felipe Schwartzman & Carlos Carvalho, 2008. "Heterogeneous Price Setting Behavior and Monetary Non-neutrality: Some General Results," 2008 Meeting Papers 1040, Society for Economic Dynamics.
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    Keywords

    Econometric models; Stochastic analysis; Prices; Vector autoregression; Equilibrium (Economics); Bayesian statistical decision theory;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • 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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