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American Economic Review: Vol. 99 No. 1 (March 2009)

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Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data

Article Citation

Boivin, Jean, Marc P. Giannoni, and Ilian Mihov. 2009. "Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data." American Economic Review, 99(1): 350-84.

DOI: 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 sectorspecific 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)

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Authors

Boivin, Jean (HEC Montreal and CIRANO)
Giannoni, Marc P. (Columbia U and CIRANO)
Mihov, Ilian (INSEAD, Singapore)

JEL Classifications

E13: General Aggregative Models: Neoclassical
E31: Price Level; Inflation; Deflation
E32: Business Fluctuations; Cycles
E52: Monetary Policy


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