Sectoral Prices Dynamics, Idiosyncratic Shocks and Monetary Policy
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| Title | Sectoral Prices Dynamics, Idiosyncratic Shocks and Monetary Policy
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| Author | Du Haitao and Deng Xiang |
| Organization | Southwest University for Nationalities, Sichuan University |
| Email | haitao_du@qq.com；dengxiangecon@hotmail.com |
| Key Words | Dynamic factor models; Structural VARs; Sectoral Prices; Aggregate Prices |
| Abstract | Structural VARs have to exploit not only a limited amount of information, but cause estimation bias. However, dynamic factor model can overcome structural VARs’s shortcoming, which combine large-dimensional factor model with structural VARs. We attempt to decompose ?uctuations in sectoral prices into common and idiosyncratic components using a dynamic factor model in order to shed light on sectoral and aggregate in?ation dynamics in China. Our main findings support the basic facts in the related literature. Furthermore, we find some China-specific characteristics: (1) the common component share in sectoral inflation is larger than that of US and Euro area; (2) comparing with consumer’s goods, aggregate macro shocks account for more of variance in sectoral price of producer’s goods and material of production; (3) even in aggregate level, idiosyncratic shocks contribute more to variance of consumer’s goods prices. |
| Serial Number | WP582 |
| Time | 2014-01-14 |
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