Industrial Transformation, Heterogeneity in Price Stickiness, and the Great Moderation

Alessandro Flamini (), Guido Ascari and Lorenza Rossi

No 24, Dynare Working Papers from CEPREMAP

Abstract: Since the ’80s the volatility of output growth and inflation experienced by several industrialized countries has remarkably declined, what has been dubbed the “Great Moderation”. Various explanations have been proposed and likely all play some role. This paper shows that when an industrial transformation reduces the weight of the manufacturing sector relative to the services sector, the presence of sectoral heterogeneity in price stickiness leads to a significant decline in the volatility of inflation and output growth.

Keywords: Great Moderation; sectoral asymmetries; price stickiness; new Keynesian model; persistence; volatility (search for similar items in EconPapers)
JEL-codes: E31 E32 E37 E52 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2012-12
New Economics Papers: this item is included in nep-mac
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Working Paper: Industrial Transformation, Heterogeneity in Price Stickiness, and the Great Moderation (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:cpm:dynare:024

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