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Sectoral Price Rigidity and Aggregate Dynamics

Listed author(s):
  • Hafedh Bouakez
  • Emanuela Cardia
  • Francisco J. Ruge-Murcia

In this paper, we study the macroeconomic implications of sectoral heterogeneity and, in particular, heterogeneity in price setting, through the lens of a highly disaggregated multi-sector model. The model incorporates several realistic features and is estimated using a mix of aggregate and sectoral U.S. data. The frequencies of price changes implied by our estimates are remarkably consistent with those reported in micro-based studies, especially for non-sale prices. The model is used to study (i) the contribution of sectoral characteristics to the observed cross sectional heterogeneity in sectoral output and inflation responses to a monetary policy shock, (ii) the implications of sectoral price rigidity for aggregate output and inflation dynamics and for cost pass-through, and (iii) the role of sectoral shocks in explaining secotral prices and quantities.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 0906.

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Date of creation: 2009
Handle: RePEc:lvl:lacicr:0906
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