Price rigidities and the granular origins of aggregate fluctuations

Ernesto Pasten, Raphael Schoenle and Michael Weber

No 2102, Working Paper Series from European Central Bank

Abstract: We study the aggregate implications of sectoral shocks in a multi-sector New Keynesian model featuring sectoral heterogeneity in price stickiness, sector size, and input-output linkages. We calibrate a 341 sector version of the model to the United States. Both theoretically and empirically, sectoral heterogeneity in price rigidity (i) generates sizable GDP volatility from sectoral shocks, (ii) amplifies both the “granular” and the “network” effects, (iii) alters the identity and relative contributions of the most important sectors for aggregate fluctuations, (iv) can change the sign of fluctuations, (v) invalidates the Hulten (1978) Theorem, and (vi) generates a “frictional” origin of aggregate fluctuations. JEL Classification: E31, E32, O40

Keywords: idiosyncratic shocks; input-output linkages; sticky prices (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-cta, nep-dge, nep-mac and nep-opm
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Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Price rigidities and the granular origins of aggregate fluctuations (2018)
Working Paper: Price Rigidities and the Granular Origins of Aggregate Fluctuations (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20172102

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