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Title:Sectoral price facts in a sticky-price model PDF Logo
Authors:Carvalho, Carlos
Lee, Jae Won
Issue Date:2011
Series/Report no.:Staff Report, Federal Reserve Bank of New York 495
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 US 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.
Subjects:heterogeneity
price stickiness
sectoral data
FAVAR
aggregate shocks
sectoral shocks
JEL:E30
E31
E32
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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