Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data
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Open Access
- 1 February 2009
- journal article
- Published by American Economic Association in American Economic Review
- Vol. 99 (1) , 350-384
- https://doi.org/10.1257/aer.99.1.350
Abstract
This paper shows that the recent evidence that disaggregated prices are volatile does not necessarily challenge the hypothesis of price rigidity used in a large class of macroeconomic models. We document the effect of macroeconomic and sectoral disturbances by estimating a factor-augmented vector autoregression using a large set of macroeconomic indicators and disaggregated prices. Our main finding is that disaggregated prices appear sticky in response to macroeconomic and monetary disturbances, but flexible in response to sector-specific shocks. The observed flexibility of disaggregated prices reflects the fact that sector-specific shocks account on average for 85 percent of their monthly fluctuations. (JEL E13, E31, E32, E52)Keywords
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