Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data

Marc Giannoni, Ilian Mihov and Jean Boivin ()

No 6101, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper disentangles fluctuations in disaggregated prices due to macroeconomic and sectoral conditions using a factor-augmented vector autoregression estimated on a large data set. On the basis of this estimation, we establish eight facts: (1) Macroeconomic shocks explain only about 15% of sectoral inflation fluctuations; (2) The persistence of sectoral inflation is driven by macroeconomic factors; (3) While disaggregated prices respond quickly to sector-specific shocks, their responses to aggregate shocks are small on impact and larger thereafter; (4) Most prices respond with a significant delay to identified monetary policy shocks, and show little evidence of a 'price puzzle'' contrary to existing studies based on traditional VARs; (5) Categories in which consumer prices fall the most following a monetary policy shock tend to be those in which quantities consumed fall the least; (6) The observed dispersion in the reaction of producer prices is relatively well explained by the degree of market power; (7) Prices in sectors with volatile idiosyncratic shocks react rapidly to aggregate monetary policy shocks; (8) The sector-specific components of prices and quantities move in opposite directions.

Keywords: Factor-augmented var; Monetary policy; Price stickiness (search for similar items in EconPapers)
JEL-codes: C3 D2 E31 E4 E5 (search for similar items in EconPapers)
Date: 2007-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Related works:
Journal Article: Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data (2009)
Working Paper: Sticky Prices and Monetary Policy: Evidence from Disaggregated U.S. Data (2007)
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