Sticky Prices and Monetary Policy: Evidence from Disaggregated U.S. Data / Jean Boivin, Marc Giannoni, Ilian Mihov.

Format:

Book

Author/Creator:

Boivin, Jean.

Contributor:

National Bureau of Economic Research.

Giannoni, Marc.

Mihov, Ilian.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12824.

NBER working paper series no. w12824

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Sticky Prices and Monetary Policy

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

This paper disentangles fluctuations in disaggregated prices due to macroeconomic and sectoral conditions using a factor-augmented vector autoregression estimated on a large data set. On the basis of this estimation, we establish eight facts: (1) Macroeconomic shocks explain only about 15% of sectoral inflation fluctuations; (2) The persistence of sectoral inflation is driven by macroeconomic factors; (3) While disaggregated prices respond quickly to sector-specific shocks, their responses to aggregate shocks are small on impact and larger thereafter; (4) Most prices respond with a significant delay to identified monetary policy shocks, and show little evidence of a "price puzzle," contrary to existing studies based on traditional VARs; (5) Categories in which consumer prices fall the most following a monetary policy shock tend to be those in which quantities consumed fall the least; (6) The observed dispersion in the reaction of producer prices is relatively well explained by the degree of market power; (7) Prices in sectors with volatile idiosyncratic shocks react rapidly to aggregate monetary policy shocks; (8) The sector-specific components of prices and quantities move in opposite directions.

Notes:

Print version record

January 2007.