2017-12 | September 2017
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Approximating Multisector New Keynesian Models
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.
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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