Examining Sectoral Co-Movement in Estimated Nominal Rigidities Models

Junhee Lee ()

The B.E. Journal of Macroeconomics, 2009, vol. 9, issue 1, 22

Abstract: Recently, Barsky et al. (2007) found that a sticky-price model does not generate sectoral co-movement and that the propagation mechanism is weak in response to monetary shocks if prices in the durable goods sector are significantly flexible, which raises a co-movement problem in sticky-price models. In this paper, we estimate sticky-price models with both durable and nondurable goods sectors in order to examine sectoral price stickiness and co-movement using actual data. The estimation results show that prices in both sectors are relatively sticky and the co-movement problem does not occur in the usual settings. We find, however, that the co-movement problem may occur when we introduce persistent price-markup shocks in a sticky-price model. We also estimate nominal rigidities models with sticky wages as well as sticky prices and find that sticky wages are helpful in explaining sectoral co-movement in addition to sticky prices.

Keywords: sectoral co-movement; sticky prices; sticky wages; nominal rigidities (search for similar items in EconPapers)
Date: 2009
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DOI: 10.2202/1935-1690.1773

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