Price Rigidities and the Granular Origins of Aggregate Fluctuations

63 Pages Posted: 13 Oct 2017

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)

Multiple version iconThere are 5 versions of this paper

Date Written: October 10, 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: E31, E32, O40

Suggested Citation

Pasten, Ernesto and Schoenle, Raphael and Weber, Michael, Price Rigidities and the Granular Origins of Aggregate Fluctuations (October 10, 2017). ECB Working Paper No. 2102, Available at SSRN: https://ssrn.com/abstract=3052068 or http://dx.doi.org/10.2139/ssrn.3052068

Ernesto Pasten (Contact Author)

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

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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