Sectoral Price Rigidity and Aggregate Dynamics

Hafedh Bouakez, Emanuela Cardia, Francisco J. Ruge-Murcia
2009 Social Science Research Network  
In this paper, we study the macroeconomic implications of sectoral heterogeneity and, in particular, heterogeneity in price setting, through the lens of a highly disaggregated multi-sector model. The model incorporates several realistic features and is estimated using a mix of aggregate and sectoral U.S. data. The frequencies of price changes implied by our estimates are remarkably consistent with those reported in micro-based studies, especially for non-sale prices. The model is used to study
more » ... i) the contribution of sectoral characteristics to the observed cross sectional heterogeneity in sectoral output and inflation responses to a monetary policy shock, (ii) the implications of sectoral price rigidity for aggregate output and inflation dynamics and for cost pass-through, and (iii) the role of sectoral shocks in explaining sectoral prices and quantities.
doi:10.2139/ssrn.1349107 fatcat:fkd63x7s7jhodefu5aaiai647e