The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy / Ernesto Pastén, Raphael Schoenle, Michael Weber.

Format:

Book

Author/Creator:

Pastén, Ernesto.

Contributor:

National Bureau of Economic Research.

Schoenle, Raphael.

Weber, Michael (Professor of finance)

Series:

Working Paper Series (National Bureau of Economic Research) no. w25303.

NBER working paper series no. w25303

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

We study the transmission of monetary policy shocks in a model in which realistic heterogeneity in price rigidity interacts with heterogeneity in sectoral size and input-output linkages, and derive conditions under which these heterogeneities generate large real effects. Empirically, heterogeneity in the frequency of price adjustment is the most important driver behind large real effects, whereas heterogeneity in input-output linkages contributes only marginally, with differences in consumption shares in between. Heterogeneity in price rigidity further is key in determining which sectors are the most important contributors to the transmission of monetary shocks, and is necessary but not sufficient to generate realistic output correlations. In the model and data, reducing the number of sectors decreases monetary non-neutrality with a similar impact response of inflation. Hence, the initial response of inflation to monetary shocks is not sufficient to discriminate across models and for the real effects of nominal shocks.

Notes:

Print version record

November 2018.