Economics Research Community Seminar – Dr Cesar Blanco

Title: Monetary Policy, Sectoral Composition and Sticky Wages

Date:  29 November 2023

Time: 13:00-14:00

Location: NUBS.2.13

If you would like to attend, please register using the following link:

Monetary Policy, Sectoral Composition and Sticky Wages

Speaker: Dr Cesar Blanco

Cesar is a Lecturer in Economics at Newcastle University Business School. Previously, he was a Research Economist at the Central Bank of Paraguay. He obtained my PhD in Economics from the University of Barcelona in 2018. He conducts research on Macroeconomics, in particular Economic Growth, Structural Change and Monetary Policy.

Abstract:

We study what is the optimal measure of inflation that central banks should target given the sectoral characteristics of the economy. For this purpose, we build a New Keynesian model that features two sectors, agriculture and non-agriculture, sticky wages and idiosyncratic productivity shocks. We calibrate the model to replicate the sectoral composition of developing and developed countries. We find that the optimal weights depend on the type of shock hitting the economy. After agricultural productivity shocks, the optimal measure of inflation implies zero weight to agricultural inflation. After non-agricultural productivity shocks, it is optimal to assign full weight to agricultural inflation. The reason is that targeting inflation in the sector unaffected by shocks indirectly contains wage inflation. This prescription is independent of sectoral sizes and relative price rigidities.