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Sticky Prices and Monetary Policy: Evidence from Disaggregated U.S. Data

Jean Boivin, Marc Giannoni, Ilian Mihov

Publication type: Journal article

Research Archive Topic: Business Economics and Public Policy, Corporate Finance

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 sector-specific shocks. The observed flexibility of disaggregated prices reflects the fact that sector-specific shocks account on average for 85 percent of their monthly fluctuations.
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Citation

Boivin, Jean, Marc Giannoni, and Ilian Mihov. "Sticky Prices and Monetary Policy: Evidence from Disaggregated U.S. Data." American Economic Review 99, no. 1 (March 2009): 350?84.


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