There is ample evidence that the frequency of price adjustments differs substantially across sectors. This paper introduces sectoral heterogeneity in price stickiness into an otherwise standard sticky price model to study how it affects the dynamics of monetary economies. Qualitative and quantitative results from a realistic calibration for the U.S. economy show that monetary shocks tend to have larger and more persistent real effects in heterogeneous economies, when compared to identical-firms economies with similar degrees of nominal and real rigidity. In the presence of strategic complementarities in price setting, sectors with lower frequencies of price adjustment have a disproportionate effect on the aggregate price level. In order to better approximate the dynamics of the calibrated heterogeneous economy, an identical-firms model requires a frequency of price changes that is up to three times lower than the average of the heterogeneous economy. * I would like to thank

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe study the purchasing power parity (PPP) puzzle in a multisector, two-country, sticky-price model. Firms' price stickiness differs across sectors, in accordance with recent microeconomic evidence on price setting in various countries. Combined with local currency pricing, these differences lead sectoral real exchange rates to exhibit heterogeneous dynamics. We show that in this economy, deviations of the real exchange rate from PPP are more volatile and persistent when compared with a counterfactual one-sector world economy that features the same average frequency of price changes and is otherwise identical to the multisector world economy. When simulated with a sectoral distribution of price stickiness that matches the microeconomic evidence for the U.S. economy, the model produces a half-life of deviations from PPP of forty-five months. In contrast, the half-life of such deviations in the counterfactual one-sector economy is only slightly above one year. As a by-product, our model provides a decomposition of this difference in persistence that allows a structural interpretation of the approaches found in the empirical literature on aggregation and the real exchange rate. In particular, we reconcile the apparently conflicting findings that gave rise to the "PPP strikes back" debate (Imbs et al. [2005a, b] and Chen and Engel [2005]).

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We combine questions from the Michigan Survey about the future path of prices, interest rates, and unemployment to investigate whether U.S. households are aware of the so-called Taylor (1993) rule. For comparison, we perform the same analysis using questions from the Survey of Professional Forecasters. Our …ndings support the view that some households form their expectations about the future path of interest rates, in ‡ation, and unemployment in a way that is consistent with Taylor-type rules. The extent to which this happens, however, does not appear to be uniform across income and education levels. In particular, we …nd evidence that the relationship between unemployment and interest rates is not properly understood by households in the lowest income quartile, and by those with no high school diploma. We also …nd evidence that the perceived e¤ect of unemployment on interest rates is asymmetric, being relevant only for interest-rate decreases. Finally, we argue that the relationships we uncover can be given a causal interpretation.JEL classi…cation codes: E52, E58

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe consider a new method to estimate causal effects when a treated unit suffers a shock or an intervention, such as a policy change, but there is not a readily available control group or counterfactual. We propose a two-step approach where in the first stage an artificial counterfactual is estimated from a large-dimensional set of variables from pool of untreated units ("donors pool") using shrinkage methods, such as the Least Absolute Shrinkage Operator (LASSO). In the second stage, we estimate the average intervention effect on a vector of variables belonging to the treated unit, which is consistent and asymptotically normal. Our results are valid uniformly over a wide class of probability laws. Furthermore, we show that these results still hold when the date of the intervention is unknown and must be estimated from the data. Tests for multiple interventions and for contamination effects are also derived. By a simple transformation of the variables of interest, it is also possible to test for intervention effects on several moments (such as the mean or the variance) of the variables of interest. Finally, we can disentangle the actual intervention effects from confounding factors that usually bias "before-and-after" estimators. A detailed Monte Carlo experiment evaluates the properties of the method in finite samples and compares our proposal with other alternatives such as the differences-in-differences, factor models and the synthetic control method. An empirical application to evaluate the effects on inflation of a new anti tax evasion program in Brazil is considered. Our methodology is inspired by different branches of the literature such as: the Synthetic Control method, the Global Vector Autoregressive models, the econometrics of structural breaks, and the counterfactual analysis based on macro-econometric and panel data models.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe develop a multi-sector sticky-price DSGE model that can endogenously deliver di¤erential responses of prices to aggregate and sectoral shocks. Input-output production linkages induce across-sector pricing complementarities that contribute to a slow response of prices to aggregate shocks. In turn, input-market segmentation at the sectoral level induces within-sector pricing substitutability, which helps the model deliver a fast response of prices to sector-speci…c shocks. We estimate the model using aggregate and sectoral price and quantity data for the U.S., and …nd that it accounts extremely well for a range of sectoral price facts.JEL classi…cation codes: E30, E31, E32

We combine questions from the Michigan Survey about the future path of prices, interest rates, and unemployment to investigate whether U.S. households are aware of the so-called Taylor (1993) rule. For comparison, we perform the same analysis using questions from the Survey of Professional Forecasters. Our …ndings support the view that some households form their expectations about the future path of interest rates, in ‡ation, and unemployment in a way that is consistent with Taylor-type rules. The extent to which this happens, however, does not appear to be uniform across income and education levels. In particular, we …nd evidence that the relationship between unemployment and interest rates is not properly understood by households in the lowest income quartile, and by those with no high school diploma. We also …nd evidence that the perceived e¤ect of unemployment on interest rates is asymmetric, being relevant only for interest-rate decreases. Finally, we argue that the relationships we uncover can be given a causal interpretation.JEL classi…cation codes: E52, E58