Sectoral Price Rigidity and Aggregate Dynamics
60 Pages Posted: 6 Feb 2010
Date Written: September 1, 2009
The macroeconomic implications of sectoral heterogeneity are examined using a highly disaggregated multi-sector model. The model is estimated by Simulated Method of Moments 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. We 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: Suggested Citation