Sectoral Price Stickiness and Inflation Persistence in Poland: A Two-Sector DSGE Approach

Agnieszka Leszczyńska-Paczesna

Prague Economic Papers, 2020, vol. 2020, issue 2, 152-186

Abstract: This paper presents a theoretical model that is suitable for the analysis of price-setting hetero-geneity in a small open economy. The model is based on Benigno and López-Salido's (2006) work and is one of many examples of a dynamic stochastic general equilibrium (DSGE) model that utilizes heterogeneous price stickiness (e.g., Aoki, 2001; Bodenstein et al., 2008). The model allows analyses of a small open economy by extending the existing multisector models using the mechanisms described by Galí and Monacelli (2005). As a result, the model enables monetary policy analyses that take into account existing sectoral differences in the price-setting mechanisms found in an open economy. In the empirical part of the paper, the model is estimated on data for Poland using Bayesian techniques. The results show that the period 1999-2017 saw significant differences in price stickiness and inflation persistence in the sectors that produce food and energy compared with sectors that produce other goods and services.

Keywords: DSGE; core inflation; Bayes factor; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E30 E32 E37 E40 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.18267/j.pep.735

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