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Title Sectoral Heterogeneity in Nominal Rigidities in Korea: Implications for Monetary Policy
Author Seula Kim (University of Maryland) and Jae Won Lee (University of Virginia)
Volume 36 Number 1
Keywords Heterogeneity, Price Stickiness, Multiple Sectors, DSGE Model, Monetary Policy, Economy of Korea
Abstract This paper documents how the frequency of price changes differs across sectors in Korea and what implications such heterogeneity may have for monetary policy. Under heterogeneity, i) monetary policy has larger and more persistent real effects, ii) stabilizing an alternative (optimal) price index that places disproportionately larger weights on stickysectors rather than the consumer price index is welfare improving, iii) the central bank,targeting such an alternative index, should move nominal interest rates slowly, which may justify gradualism in monetary policy, and iv) the condition for equilibrium determinacy is different. The results suggest that the monetary authority must consider how firms pricing behaviors differ across sectors in the design of monetary policy.
File KER-20200101-36-1-03.pdf
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