Heterogeneity in sectoral price and quantity responses to shocks to monetary policy

Özmen M. U. , Tuğan M.

Journal of Macroeconomics, vol.73, 2022 (Journal Indexed in SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 73
  • Publication Date: 2022
  • Doi Number: 10.1016/j.jmacro.2022.103439
  • Title of Journal : Journal of Macroeconomics
  • Keywords: Differences in sectoral labor shares, Sectoral frequency of price changes, Sectoral heterogeneity in front-loading, Shocks to monetary policy


© 2022 Elsevier Inc.This paper investigates the sectoral price and quantity responses to an exogenous interest rate shock in the United States. It has two main findings. First, an interest rate shock causes strong relative price effects in a non-negligible number of sectors whose price responses to the shock differ broadly from those of the aggregate. More importantly, such effects are present even four years after the shock. Second, sectoral differences in the frequency of price changes are only weakly associated with the sectoral price and quantity responses. We show that a multi-sector model equipped with a working-capital channel, sticky wages, and sectoral heterogeneity in the frequency of price changes and the structure of production costs can explain these two findings.