NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Price Rigidities and the Granular Origins of Aggregate Fluctuations

Ernesto Pasten, Raphael Schoenle, Michael Weber

NBER Working Paper No. 23750
Issued in August 2017
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

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.

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Document Object Identifier (DOI): 10.3386/w23750

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