Implications for Aggregate Inflation of Sectoral Asymmetries: An Empirical Implication

Following the theoretical identification scheme that relies on the two-sector DSGE macro model derived in a study by Koskinen and Vilmunen (2017), the focus of this study is to empirically estimate and identify the possibly divergent sector specific parameters within an economy. We analyse and compare two different sectors of the Finnish economy, manufacturing industry and building industry,each in turn to the rest of the economy during 2000:Q1- 2015Q2. It is hence assumed, that the parameters of interest within a sector reflect the divergent preferences of economic agents to the goods produced at different sectors. The relative price movements and adjustment asymmetries stemming from these kind of divergences has a central role in allocational efficiency and welfare of the economy. Then this diversity has important implications to any economic policy practised as these divergent preferences could give rise to asymmetric reaction to any shock that hits the economy. As a result, there is evidence that the economy could be characterised to be compounded of divergent groups of goods. These groups, then, has group specific parameters reflecting different behaviour of the agents and their preferences to the goods produced.