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Price stickiness asymmetry, persistence and volatility in a New Keynesian model

Flamini, A. (2011) Price stickiness asymmetry, persistence and volatility in a New Keynesian model. Working Paper. Department of Economics, University of Sheffield ISSN 1749-8368

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Abstract

In a two-sector New-Keynesian model, this paper shows that the dispersion in the degree of sectoral price stickiness plays a key role in the determination of the dynamics of aggregate inflation and, consequently, of the whole economy. The dispersion in price stickiness reduces the persistence of inflation and, to a smaller extent, of the interest rate. It also reduces the volatility of inflation, the interest rate and the output-gap. Thus two economies with the same average degree of price stickiness but a different variance may behave very differently, highlighting the relevance of sectoral data for economic estimations and forecasts.

Item Type: Monograph (Working Paper)
Copyright, Publisher and Additional Information: The Sheffield Economics Research Paper (SERP) series offers a forum for the research output of the academic staff and research students of the Department of Economics, University of Sheffield. Papers are reviewed for quality and presentation by a departmental editor. However, the contents and opinions expressed remain the responsibility of the authors. All papers may be downloaded free on the understanding that the contents are preliminary and therefore permission from the author(s) should be sought before they are referenced.
Keywords: sectoral asymmetries, price stickiness, New Keynesian model, persistence, volatility
Institution: The University of Sheffield
Academic Units: The University of Sheffield > Faculty of Social Sciences (Sheffield) > Department of Economics (Sheffield) > Sheffield Economics Research Papers Series
Depositing User: Repository Officer
Date Deposited: 13 Jun 2011 16:21
Last Modified: 08 Jun 2014 14:01
Published Version: http://www.shef.ac.uk/economics/research/serps/yea...
Status: Published
Publisher: Department of Economics, University of Sheffield
Identification Number: Sheffield Economic Research Paper Series 2011013
URI: http://eprints.whiterose.ac.uk/id/eprint/43087

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