Sectoral Price Facts in a Sticky-Price Model

53 Pages Posted: 26 May 2011

See all articles by Carlos Carvalho

Carlos Carvalho

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Jae Won Lee

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences - New Brunswick/Piscataway - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2011

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: heterogeneity, price stickiness, sectoral data, FAVAR, aggregate shocks, sectoral shocks

JEL Classification: E30, E31, E32

Suggested Citation

Carvalho, Carlos and Lee, Jae Won, Sectoral Price Facts in a Sticky-Price Model (May 1, 2011). Available at SSRN: https://ssrn.com/abstract=1851765 or http://dx.doi.org/10.2139/ssrn.1851765

Carlos Carvalho (Contact Author)

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

HOME PAGE: http://https://sites.google.com/site/cvianac2/carloscarvalho

Jae Won Lee

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences - New Brunswick/Piscataway - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

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