European Parliament Library

Price Setting in a Model with Production Chains :, Evidence from Sectoral Data, Maral Shamloo

Abstract
Reconciling the high frequency of price changes at the micro level and their apparent rigidity at the aggregate level has been the subject of considerable debate in macroeconomics recently. In this paper I show that incorporating production chains in a standard New- Keynesian model replicates two stylized facts about the data. First, sectoral prices respond with significantly different speeds to aggregate shocks. Meanwhile, the responses to sectorspecific shocks are similar. Second, the standard price setting models are unable to quantitatively match the amount of monetary non-neutrality observed in the data. I argue, First, that the input-output linkages in production generate different responses to aggregate shocks across sectors. Second, calibrating this model to the US data can create five times more monetary non-neutrality in response to nominal shocks compared to an equivalent homogeneous economy with intermediate inputs. Finally, the model implies that upstream industries respond faster to aggregate shocks compared to downstream industries. I show that this prediction is supported by the data
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; II. Model; A. Households; B. Firms; 1. Market Clearing; 2. Firms' Price Setting; C. Monetary Policy and Shocks; D. Linearized Steady State; III. Calibration; 1. Calibrating the Benchmark Parameters; A. A Two-Sector Example; 1. A Special Two-Sector Economy Example; B. The Multi-Sector Model; 2. Calibrating the Multi-Sector Economy; 2. Heterogeneity in siωi = 0.85.εi = ςi = (1/6); 3. Real Effects of Shocks; 3. Heterogeneity in si, ωi.; 4. Heterogeneity in si, ωi, εi and ςi; C. Discussion of results; IV. Empirical Evidence
Language
eng
Literary Form
non fiction
Note
"March 2010"
Physical Description
1 online resource (67 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9780146231841

Library Locations

  • EP Library Strasbourg

    7 Place Adrien Zeller, Allée du Printemps, Strasbourg, F-67070, FR
    Borrow
  • EP Library Luxembourg

    Rue du Fort Thüngen, Luxembourg, L-1313, LU
    Borrow
  • EP Library Brussels

    60 rue Wiertz, Brussels, B-1047, BE
    Borrow