TY - BOOK ID - 84658399 TI - Price Setting in a Model with Production Chains : Evidence from Sectoral Data PY - 2010 SN - 146231841X 1452788383 1282845802 9786612845802 1451982666 PB - Washington, D.C. : International Monetary Fund, DB - UniCat KW - Prices KW - Cost. KW - Government policy. KW - Costs (Economics) KW - Expenses KW - Economics KW - Contingent fees KW - Government price policy KW - Wage-price policy KW - Macroeconomics KW - Economic Theory KW - Price Level KW - Inflation KW - Deflation KW - Macroeconomics: Consumption KW - Saving KW - Wealth KW - Energy: Demand and Supply KW - Agriculture: Aggregate Supply and Demand Analysis KW - Economic theory & philosophy KW - Price adjustments KW - Consumption KW - Oil prices KW - Supply shocks KW - Sticky prices KW - Supply and demand KW - United States UR - https://www.unicat.be/uniCat?func=search&query=sysid:84658399 AB - Reconciling the high frequency of price changes at the micro level and their apparent rigidity at the aggregate level has been the subject of considerable debate in macroeconomics recently. In this paper I show that incorporating production chains in a standard New- Keynesian model replicates two stylized facts about the data. First, sectoral prices respond with significantly different speeds to aggregate shocks. Meanwhile, the responses to sectorspecific shocks are similar. Second, the standard price setting models are unable to quantitatively match the amount of monetary non-neutrality observed in the data. I argue, First, that the input-output linkages in production generate different responses to aggregate shocks across sectors. Second, calibrating this model to the US data can create five times more monetary non-neutrality in response to nominal shocks compared to an equivalent homogeneous economy with intermediate inputs. Finally, the model implies that upstream industries respond faster to aggregate shocks compared to downstream industries. I show that this prediction is supported by the data. ER -