Price Stickiness Asymmetry, Persistence and Volatility in a New Keynesian Model

Alessandro Flamini ()

No 2011013, Working Papers from The University of Sheffield, Department of Economics

Abstract: In a two-sector New-Keynesian model, this paper shows that the dispersion in the degree of sectoral price stickiness plays a key role in the determination of the dynamics of aggregate inflation and, consequently, of the whole economy. The dispersion in price stickiness reduces the persistence of inflation and, to a smaller extent, of the interest rate. It also reduces the volatility of inflation, the interest rate and the output-gap. Thus two economies with the same average degree of price stickiness but a different variance may behave very differently, highlighting the relevance of sectoral data for economic estimations and forecasts.

Keywords: 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: 21 pages
Date: 2011-05, Revised 2011-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:shf:wpaper:2011013

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