Price Rigidity and the Origins af Aggregate Fluctuations
Ernesto Pasten (),
Michael Weber and
Authors registered in the RePEc Author Service: Michael Weber ()
No 7190, CESifo Working Paper Series from CESifo Group Munich
We document a novel role of heterogeneity in price rigidity: It strongly amplifies the capacity of idiosyncratic shocks to drive aggregate fluctuations. Heterogeneity in price rigidity also completely changes the identity of sectors from which fluctuations originate. We show these results both theoretically and empirically through the lens of a multi-sector model featuring heterogeneous GDP shares, input-output linkages, and idiosyncratic productivity shocks. Quantitatively, we calibrate our model to 341 sectors and find sectoral productivity shocks can give rise to aggregate fluctuations that are half as large as those arising from an aggregate productivity shock. Heterogeneous price rigidity amplifies the aggregate fluctuations by a factor of more than 2 relative to a flexible-price or homogeneous sticky price economy. Hence, idiosyncratic shocks and heterogeneous price rigidity can account for large parts of aggregate fluctuations and there is hope we will not “forever remain ignorant of the fundamental causes of economic fluctuations” (Cochrane (1994)).
Keywords: input-output linkages; nominal price rigidity; idiosyncratic shocks (search for similar items in EconPapers)
JEL-codes: E31 E32 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
Working Paper: Price Rigidity and the Origins of Aggregate Fluctuations (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7190
Access Statistics for this paper
More papers in CESifo Working Paper Series from CESifo Group Munich Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().