Sectoral Heterogeneity in Nominal Price Rigidity and the Origin of Aggregate Fluctuations
Chicago Booth Research Paper No. 17-25
University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2018-54
57 Pages Posted: 20 Aug 2017 Last revised: 8 Dec 2021
There are 5 versions of this paper
Sectoral Heterogeneity in Nominal Price Rigidity and the Origin of Aggregate Fluctuations
Price Rigidities and the Granular Origins of Aggregate Fluctuations
Price Rigidities and the Granular Origins of Aggregate Fluctuations
Price Rigidities and the Granular Origins of Aggregate Fluctuations
Price Rigidity and the Origins of Aggregate Fluctuations
Date Written: December 7, 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, unlike 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: Suggested Citation