Price Rigidities and the Granular Origins of Aggregate Fluctuations
60 Pages Posted: 15 Sep 2017
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: August 28, 2017
Abstract
We study the aggregate implications of sectoral shocks in a multi-sector New Keynesian model featuring sectoral heterogeneity in price stickiness, sector size, and input-output linkages. We calibrate a 341 sector version of the model to the United States. Both theoretically and empirically, sectoral heterogeneity in price rigidity (i) generates sizable GDP volatility from sectoral shocks, (ii) amplifies both the “granular” and the “network” effects, (iii) alters the identity and relative contributions of the most important sectors for aggregate fluctuations, (iv) can change the sign of fluctuations, (v) invalidates the Hulten (1978) Theorem, and (vi) generates a “frictional” origin of aggregate fluctuations.
Keywords: input-output linkages, sticky prices, idiosyncratic shocks
JEL Classification: E310, E320, O400
Suggested Citation: Suggested Citation