Sectoral Heterogeneity in Nominal Price Rigidity and the Origin of Aggregate Fluctuations

54 Pages Posted: 20 Aug 2017 Last revised: 26 Apr 2021

See all articles by Ernesto Pasten

Ernesto Pasten

University of Toulouse 1 - Toulouse School of Economics (TSE)

Raphael Schoenle

Brandeis University

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

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Date Written: April 26, 2021

Abstract

We derive conditions under which heterogeneity in nominal price rigidity amplifies the aggregate fluctuations from idiosyncratic shocks and demonstrate its quantitative implications: (1) GDP volatility from sectoral productivity shocks doubles when nominal price rigidity is heterogeneous rather than homogeneous; (2) sectoral productivity shocks can jointly rationalize the volatility of sectoral prices, aggregate prices, and GDP contrary to aggregate productivity shocks; (3) heterogeneity in nominal rigidity changes the sectors from which aggregate fluctuations originate. We also discuss implications for aggregate price dynamics and the role of alternative monetary policy rules.

Keywords: input-output linkages, nominal price rigidity, idiosyncratic shocks

JEL Classification: E31, E32, O40

Suggested Citation

Pasten, Ernesto and Schoenle, Raphael and Weber, Michael, Sectoral Heterogeneity in Nominal Price Rigidity and the Origin of Aggregate Fluctuations (April 26, 2021). Chicago Booth Research Paper No. 17-25, Fama-Miller Working Paper, University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2018-54, Available at SSRN: https://ssrn.com/abstract=3022193 or http://dx.doi.org/10.2139/ssrn.3022193

Ernesto Pasten

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Raphael Schoenle

Brandeis University ( email )

Waltham, MA 02454
United States

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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