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  3. American Economic Journal: Macroeconomics
  4. January 2021
  5. Sectoral Price Facts in a Sticky-Price Model

Sectoral Price Facts in a Sticky-Price Model

  • Carlos Carvalho
  • Jae Won Lee
  • Woong Yong Park
American Economic Journal: Macroeconomics
vol. 13, no. 1, January 2021
(pp. 216-56)
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Abstract

We develop a multisector sticky-price DSGE model that can endogenously deliver differential responses of prices to aggregate and sectoral shocks. Input-output production linkages and a (standard) monetary policy rule contribute to a slow response of prices to aggregate shocks. In turn, labor market segmentation at the sectoral level induces within-sector strategic substitutability in price-setting decisions, which helps the model deliver a fast response of prices to sector-specific shocks. We estimate the model using aggregate and sectoral price and quantity data for the United States and find that it accounts well for a range of sectoral price facts.

Citation

Carvalho, Carlos, Jae Won Lee, and Woong Yong Park. 2021. "Sectoral Price Facts in a Sticky-Price Model." American Economic Journal: Macroeconomics, 13 (1): 216-56. DOI: 10.1257/mac.20190205

Additional Materials

JEL Classification

  • E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
  • E21 Macroeconomics: Consumption; Saving; Wealth
  • E31 Price Level; Inflation; Deflation
  • E32 Business Fluctuations; Cycles
  • E43 Interest Rates: Determination, Term Structure, and Effects
  • E52 Monetary Policy
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