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Sectoral Price Facts in a Sticky-Price Model

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  • Jae Won Lee

    (Rutgers University)

  • Carlos Carvalho

    (Federal Reserve Bank of New York)

Abstract

We develop a multi-sector sticky-price DSGE 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, labor-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.

Suggested Citation

  • Jae Won Lee & Carlos Carvalho, 2010. "Sectoral Price Facts in a Sticky-Price Model," 2010 Meeting Papers 997, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:997
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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