Sectoral Price Facts in a Sticky-Price Model
41 Pages Posted: 4 Jul 2010 Last revised: 5 Feb 2020
Date Written: October 31, 2019
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: Suggested Citation