Sectoral Heterogeneity in Nominal Price Rigidity and the Origin of Aggregate Fluctuations

Ernesto Pastén · Raphael Schoenle · Michael Weber

22 citations0/0 files storedAmerican Economic Journal Macroeconomics

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Monetary Policy and Economic Impact Economic Theory and Policy Economic theories and models

Abstract

We study the role of heterogeneity in nominal price rigidity for aggregate fluctuations in a model with sectoral productivity shocks. Theoretically, sectoral heterogeneity in the pricing friction has an ambiguous effect on GDP and aggregate price volatility. Quantitatively, (i) GDP volatility is amplified when the friction is heterogeneous rather than homogeneous; (ii) sectoral shocks can jointly rationalize the volatility of sectoral prices, aggregate prices, and GDP, unlike aggregate shocks; and (iii) shocks to the largest or most central sectors may not matter in the aggregate as heterogeneous pricing frictions may alter the identity of the most important sectors for aggregate fluctuations. (JEL E12, E23, E31, E32)

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References

2012The Network Origins of Aggregate Fluctuations 2004Some Evidence on the Importance of Sticky Prices 2016Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks *2017Productivity and Misallocation in General Equilibrium 2019The Macroeconomic Impact of Microeconomic Shocks: Beyond Hulten's Theorem 2016Networks and the Macroeconomy: An Empirical Exploration 2017How Important Are Sectoral Shocks?2020Distortions in Production Networks*

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