EconPapers    
Economics at your fingertips  
 

Price rigidities and the granular origins of aggregate fluctuations

Ernosto Pasten, Raphael Schoenle and Michael Weber ()

No 3/2018, Research Discussion Papers from Bank of Finland

Abstract: We study the ability of sectoral shocks to generate aggregate fluctuations in a multi-sector general equilibrium model featuring sectoral heterogeneity in price stickiness, sector size, and input-output linkages. We show fat-tailed distributions of sectoral size or network centrality are neither necessary nor sufficient for idiosyncratic shocks to generate aggregate fluctuations when the responsiveness of prices to shocks varies across sectors. We derive conditions under which a frictional origin of aggregate fluctuations arises, that is, when micro shocks contribute to aggregate fluctuations in an economy with heterogeneous price rigidities but equal sector size and network centrality across sectors. We calibrate a 341-sector version of the to the United States and a quantitatively large frictional effect. When we allow for heterogeneities in price rigidity, sector size, and network centrality, the effect of micro shocks on GDP volatility doubles relative to a frictionless economy. Heterogeneity in price rigidity also substantially changes the identity of the sectors from which GDP fluctuations originate.

JEL-codes: E31 E32 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2018-02-05
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Published in Published in European Central Bank Working Paper Series 2102/2017

Downloads: (external link)
https://helda.helsinki.fi/bof/bitstream/123456789/15163/1/BoF_DP_1803.pdf (application/pdf)

Related works:
Working Paper: Price Rigidities and the Granular Origins of Aggregate Fluctuations (2017) Downloads
Working Paper: Price rigidities and the granular origins of aggregate fluctuations (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bof:bofrdp:2018_003

Access Statistics for this paper

More papers in Research Discussion Papers from Bank of Finland Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland. Contact information at EDIRC.
Bibliographic data for series maintained by Minna Nyman ().

 
Page updated 2018-08-08
Handle: RePEc:bof:bofrdp:2018_003