Approximating Multisector New Keynesian Models

Carlos Carvalho and Fernanda Nechio

No 2017-12, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We show that a calibrated three-sector model with a suitably chosen distribution of price stickiness can closely approximate the dynamic properties of New Keynesian models with a much larger number of sectors. The parameters of the approximate three-sector distribution are such that both the approximate and the original distributions share the same (i) average frequency of price changes, (ii) cross-sectional average of durations of price spells, (iii) cross-sectional standard deviation of durations of price spells, (iv) the cross-sectional skewness of durations of price spells, and (v) cross-sectional kurtosis of durations of price spells. These results provide the tools for a growing literature that tries to estimate empirically-relevant multisector models with much reduced computational costs.

JEL-codes: E12 E22 J60 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2017-06-08
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Approximating multisector New Keynesian models (2018)
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DOI: 10.24148/wp2017-12

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