Changes in the effects of monetary policy on disaggregate price dynamics

Christiane Baumeister, Philip Liu () and Haroon Mumtaz

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 3, 543-560

Abstract: Based on a time-varying factor-augmented vector autoregression, we demonstrate that the propagation mechanism of monetary policy disturbances differs across disaggregate components of personal consumption expenditures. While many disaggregate prices rise temporarily in response to a monetary tightening in the early part of the sample, there is no evidence of a price puzzle at the aggregate level. The share of disaggregate prices that exhibit the price puzzle diminishes from the early 1980s onwards. There also is evidence of a substantial decline in the dispersion of disaggregate price responses over time. This gradual decrease in cross-sectional heterogeneity of disaggregate price responses is associated with a dampening effect on aggregate real economic activity and a stronger effect on the aggregate price level. We illustrate by means of a multi-sector sticky-price model augmented by a cost channel how key structural parameters would have had to change to match this evolution of sectoral price dynamics.

Keywords: Structural FAVAR; Time variation; Monetary transmission; Disaggregate prices; Heterogeneous pricing decisions (search for similar items in EconPapers)
JEL-codes: E30 E32 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Working Paper: Changes in the Effects of Monetary Policy on Disaggregate Price Dynamics (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:3:p:543-560

DOI: 10.1016/j.jedc.2012.09.009

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