Sectoral price facts in a sticky-price model

Carlos Carvalho and Jae Won Lee

No 495, Staff Reports from Federal Reserve Bank of New York

Abstract: We develop a multi-sector sticky-price DSGE (dynamic stochastic general equilibrium) model that can endogenously deliver differential responses of prices to aggregate and sectoral shocks. Input-output production linkages induce across-sector pricing complementarities that contribute to a slow response of prices to aggregate shocks. In turn, input-market segmentation at the sectoral level induces within-sector pricing substitutability, which helps the model deliver a fast response of prices to sector-specific shocks. Estimating the factor-augmented vector autoregression specification of Boivin, Giannoni, and Mihov (2009) on data generated by a parameterized version of our model, we find results that resemble what they obtain with disaggregated data for the U.S. economy. We then employ Bayesian methods to estimate the model using aggregate and sectoral data, and find that it accounts extremely well for a wide range of sectoral price facts.

Keywords: Econometric models; Stochastic analysis; Prices; Vector autoregression; Equilibrium (Economics); Bayesian statistical decision theory (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-dge and nep-opm
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Citations: View citations in EconPapers (26)

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Related works:
Journal Article: Sectoral Price Facts in a Sticky-Price Model (2021)
Working Paper: Sectoral Price Facts in a Sticky-Price Model (2011)
Working Paper: Sectoral Price Facts in a Sticky-Price Model (2010)
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