Sectoral Price Rigidity and Aggregate Dynamics

CIRPEE Working Paper 09-06

62 Pages Posted: 24 Jun 2009

See all articles by Hafedh Bouakez

Hafedh Bouakez

HEC Montréal

Emanuela Cardia

University of Montreal - Center for Research and Development in Economics

Francisco J. Ruge-Murcia

University of Montreal - Department of Economics; University of Montreal - Center for Interuniversity Research in Econometrics

Multiple version iconThere are 2 versions of this paper

Date Written: February 25, 2009

Abstract

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.

Keywords: multi-sector models, price stickiness, simulated method of moments, sectoral shocks, monetary policy

JEL Classification: E3, E4, E5

Suggested Citation

Bouakez, Hafedh and Cardia, Emanuela and Ruge-Murcia, Francisco J., Sectoral Price Rigidity and Aggregate Dynamics (February 25, 2009). CIRPEE Working Paper 09-06. Available at SSRN: https://ssrn.com/abstract=1349107 or http://dx.doi.org/10.2139/ssrn.1349107

Hafedh Bouakez

HEC Montréal ( email )

3000, chemin de la Côte-Sainte-Catherine
Montréal, Québec H3T 2A7
Canada
1-514-340-7003 (Phone)
1-514-340-6469 (Fax)

Emanuela Cardia

University of Montreal - Center for Research and Development in Economics ( email )

Montreal, Quebec H3T 1B9
Canada

Francisco J. Ruge-Murcia (Contact Author)

University of Montreal - Department of Economics ( email )

C.P. 6128, succursale Centre-Ville
Montreal, Quebec H3C 3J7
Canada

University of Montreal - Center for Interuniversity Research in Econometrics ( email )

C.P. 6128, Succursale Centre-ville
Montreal, Quebec H3C 3J7
Canada

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