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Sectoral Price Rigidity and Aggregate Dynamics

Listed author(s):
  • BOUAKEZ, Hafedh
  • CARDIA, Emanuela
  • RUGE-MURCIA, Francisco J.

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 sectoral prices and quantities.

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Paper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 01-2009.

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Length: 64 pages
Date of creation: 2009
Handle: RePEc:mtl:montec:01-2009
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