The Relative Price And Relative Productivity Channels For Aggregate Fluctuations

Topics:
Organization
Tags:
Channel,
Federal Reserve Bank Of San Francisco,
Finance,
Investment,
Productivity Channel
Source:
Federal Reserve Bank of San Francisco

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Overview: This paper demonstrates that sectoral heterogeneity itself - without any additional bells or whistles - has first-order implications for the transmission of aggregate shocks to aggregate variables in an otherwise standard DSGE (Dynamic Stochastic General Equilibrium) model. The effects of sectoral heterogeneity on this transmission are decomposed into two channels: a "Relative price" channel and a "relative productivity" channel. The relative price channel results from changes in the relative prices of aggregates, such as investment vis-a-vis consumption goods, which occurs in a sectoral model in response to even standard aggregate shocks. The relative productivity channel arises from changes in the distribution of inputs across sectors.

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Format: PDF | Size: 350KB | Date: Jun 2006 | Pages: 40

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