Jean Boivin, Marc P. Giannoni, Ilian Mihov
This paper shows that the recent evidence that disaggregated prices are volatile does not necessarily challenge the hypothesis of price rigidity used in a large class of macroeconomic models. We document the effect of macroeconomic and sectoral disturbances by estimating a factor-augmented vector autoregression using a large set of macroeconomic indicators and disaggregated prices. Our main finding is that disaggregated prices appear sticky in response to macroeconomic and monetary disturbances, but flexible in response to sectorspecific shocks. The observed flexibility of disaggregated prices reflects the fact that sector-specific shocks account on average for 85 percent of their monthly fluctuations. (JEL E13, E31, E32, E52).
HEC Montréal, 3000, Chemin de la Côte-Sainte-Catherine, Center for Interuniversity Research and Analysis in Organizations (CIRANO), National Bureau of Economic Research (NBER), Montréal, QC H3T 2A7, Canada; Center for Economic Policy Research (CEPR), Columbia Business School, 824 Uris Hall, New York, NY 10027, 3022 Broadway, United States; INSEAD, CEPR, Singapore 138676, 1 Ayer Rajah Avenue, Singapore
