The Transmission of Monetary Policy in a Multi-Sector Economy
Series/Report no.Cahier de recherche #2005-16
- Multi-sector models
- sticky-price DGSE models
- monetary policy
- [JEL:E3] Macroeconomics and Monetary Economics - Prices, Business Fluctuations, and Cycles
- [JEL:E4] Macroeconomics and Monetary Economics - Money and Interest Rates
- [JEL:E5] Macroeconomics and Monetary Economics - Monetary Policy, Central Banking, and the Supply of Money and Credit
- [JEL:E3] Macroéconomie et économie monétaire - Prix, fluctuations des affaires, inflation et cycles économiques
- [JEL:E4] Macroéconomie et économie monétaire - Monnaie et taux d'intérêt
- [JEL:E5] Macroéconomie et économie monétaire - Politique monétaire, banque centrale, masse monétaire et crédit
This paper constructs and estimates a sticky-price, Dynamic Stochastic General Equilibrium model with heterogenous production sectors. Sectors differ in price stickiness, capital-adjustment costs and production technology, and use output from each other as material and investment inputs following an Input-Output Matrix and Capital Flow Table that represent the U.S. economy. By relaxing the standard assumption of symmetry, this model allows different sectoral dynamics in response to monetary policy shocks. The model is estimated by Simulated Method of Moments using sectoral and aggregate U.S. time series. Results indicate 1) substantial heterogeneity in price stickiness across sectors, with quantitatively larger differences between services and goods than previously found in micro studies that focus on final goods alone, 2) a strong sensitivity to monetary policy shocks on the part of construction and durable manufacturing, and 3) similar quantitative predictions at the aggregate level by the multi-sector model and a standard model that assumes symmetry across sectors.
BOUAKEZ, Hafed, CARDIA, Emanuela et RUGE-MURCIA, Francisco, «The Transmission of Monetary Policy in a Multi-Sector Economy», Cahier de recherche #2005-16, Département de sciences économiques, Université de Montréal, 2005, 43 pages.
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