A BEJM Topics article.

Abstract

Recently, Barsky et al. (2007) found that a sticky-price model does not generate sectoral co-movement and that the propagation mechanism is weak in response to monetary shocks if prices in the durable goods sector are significantly flexible, which raises a co-movement problem in sticky-price models. In this paper, we estimate sticky-price models with both durable and nondurable goods sectors in order to examine sectoral price stickiness and co-movement using actual data. The estimation results show that prices in both sectors are relatively sticky and the co-movement problem does not occur in the usual settings. We find, however, that the co-movement problem may occur when we introduce persistent price-markup shocks in a sticky-price model. We also estimate nominal rigidities models with sticky wages as well as sticky prices and find that sticky wages are helpful in explaining sectoral co-movement in addition to sticky prices.

Submitted: June 5, 2008 · Accepted: April 30, 2009 · Published: May 25, 2009

Recommended Citation

Lee, Junhee (2009) "Examining Sectoral Co-Movement in Estimated Nominal Rigidities Models," The B.E. Journal of Macroeconomics: Vol. 9 : Iss. 1 (Topics), Article 19.
DOI: 10.2202/1935-1690.1773
Available at: http://www.bepress.com/bejm/vol9/iss1/art19