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The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy

Ernesto Pasten (), Raphael Schoenle and Michael Weber ()

No 201925R, Working Papers from Federal Reserve Bank of Cleveland

Abstract: Realistic heterogeneity in price rigidity interacts with heterogeneity in sectoral size and input-output linkages in the transmission of monetary policy shocks. Quantitatively, heterogeneity in price stickiness is the central driver for real effects. Input-output linkages and consumption shares alter the identity of the most important sectors to the transmission. Reducing the number of sectors decreases monetary non-neutrality with a similar impact response of inflation. Hence, the initial response of inflation to monetary shocks is not sufficient to discriminate across models and ignoring heterogeneous consumption shares and input-output linkages identifies the wrong sectors from which the real effects originate.

Keywords: multi-sector Calvo model; monetary policy; input-output linkages (search for similar items in EconPapers)
JEL-codes: E31 E32 O40 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2019-11-15, Revised 2020-01-15
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Working Paper: The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy (2019) Downloads
Working Paper: The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy (2018) Downloads
Working Paper: The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy (2018) Downloads
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DOI: 10.26509/frbc-wp-201925r

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