Sectoral price rigidity and aggregate dynamics

Hafedh Bouakez, Emanuela Cardia () and Francisco Ruge-Murcia

European Economic Review, 2014, vol. 65, issue C, 1-22

Abstract: This paper studies the business cycle implications of sectoral heterogeneity in price rigidity using a highly disaggregated multi-sector model. The model is estimated by the Simulated Method of Moments using a mix of aggregate and sectoral U.S. data. The frequencies of price changes implied by our estimates are consistent with those reported in micro-based studies. We show that heterogeneity in price rigidity is the primary factor explaining the heterogeneity in the responses of sectoral output and inflation to a monetary policy shock. We also find that ignoring sectoral heterogeneity in price rigidity leads to the mismeasurement of the relative importance of aggregate and sector-specific shocks in aggregate and sectoral fluctuations.

Keywords: Multi-sector models; Price stickiness; Simulated method of moments; Sectoral shocks; Monetary policy (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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Related works:
Working Paper: Sectoral Price Rigidity and Aggregate Dynamics (2009)
Working Paper: Sectoral Price Rigidity and Aggregate Dynamics (2009)
Working Paper: Sectoral Price Rigidity and Aggregate Dynamics (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:65:y:2014:i:c:p:1-22

DOI: 10.1016/j.euroecorev.2013.09.009

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