Sectoral Price Facts in a Sticky-Price Model

41 Pages Posted: 4 Jul 2010 Last revised: 5 Feb 2020

See all articles by Carlos Carvalho

Carlos Carvalho

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Jae Won Lee

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences - New Brunswick/Piscataway - Department of Economics

Woong Yong Park

Seoul National University

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Date Written: October 31, 2019

Abstract

We develop a multisector sticky-price DSGE model that can endogenously deliver differential responses of prices to aggregate and sectoral shocks. Input-output production linkages and a (standard) monetary policy rule contribute to a slow response of prices to aggregate shocks. In turn, labor market segmentation at the sectoral level induces within-sector strategic substitutability in price-setting decisions, which helps the model deliver a fast response of prices to sector-specific shocks. We estimate the model using aggregate and sectoral price and quantity data for the U.S., and find that it accounts well for a range of sectoral price facts.

Keywords: heterogeneity, price stickiness, sectoral data, FAVAR, aggregate shocks, sectoral shocks

JEL Classification: E30, E31, E32

Suggested Citation

Carvalho, Carlos and Lee, Jae Won and Park, Woong Yong, Sectoral Price Facts in a Sticky-Price Model (October 31, 2019). Available at SSRN: https://ssrn.com/abstract=1633135 or http://dx.doi.org/10.2139/ssrn.1633135

Carlos Carvalho (Contact Author)

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

HOME PAGE: http://https://sites.google.com/site/cvianac2/carloscarvalho

Jae Won Lee

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences - New Brunswick/Piscataway - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

Woong Yong Park

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

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