Price Rigidity and the Granular Origin of Aggregate Fluctuations
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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 Theorem, and (vi) generates a frictional origin of aggregate fluctuations.
Date: 24 October 2017, 16:30 (Tuesday, 3rd week, Michaelmas 2017)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room G
Speaker: Ernesto Pasten (Toulouse School of Economics)
Organising department: Department of Economics
Part of: Macroeconomics Seminar
Booking required?: Not required
Audience: Members of the University only
Editors: Erin Saunders, Anne Pouliquen