A three-sector model with a suitably chosen distribution of price stickiness can closely approximate the response to aggregate shocks of New Keynesian models with a much larger number of sectors, allowing for their estimation at much reduced computational cost.
Article Citation
Carvalho, Carlos, and Fernanda Nechio. 2017. “Approximating Multisector New Keynesian Models,” Federal Reserve Bank of San Francisco Working Paper 2017-12. Available at https://doi.org/10.24148/wp2017-12
About the Author
Fernanda Nechio is a vice president in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Fernanda Nechio