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Abstract
This thesis is separated in two chapters.
In the first chapter I develop a multi-sector model with
price frictions, production networks, trend inflation and different
types of shocks to study how these conditions affect the properties
of inflation and their implications for monetary policy. Calibrating
the model to the U.S. economy my results show that in this setting
inflation becomes 30\% less sensitive to the output-gap compared to
a standard one-sector model. Furthermore, in the multi-sector model
inflation is affected by sectoral variables linked to between-sector
and within-sector price distortions. This fact adds inertia to the
inflationary process and makes monetary policy less effective. Additionally,
the welfare costs of trend inflation increase by one order of magnitude
in the multi-sector model compared to the standard one-sector model.
The amplification is quantitatively explained by between-sector rather
than within-sector price distortions. This suggests that one-sector
models and models without heterogeneity underestimate the costs of
long-run inflation and the efficacy of monetary policy to fight inflation.
The second chapter is based on a paper jointly written with Francesca Loria.
We construct a New Keynesian model with production networks to study
how aggregate productivity, measured as the Solow residual, depends
on sectoral markups and on the production
network itself. The model also allows us to study the dynamic behavior
of aggregate productivity facing different types of aggregate and
sectoral shocks. The introduction of price stickiness allows us to
shed a light on monetary-induced short run productivity changes. We
calibrate a 14-sectors economy using the I-O tables from the Bureau
of Economic Analysis. For the U.S. economy, aggregate productivity
is quite sensitive to average markups. A relatively small average
price markup of 15\% over marginal cost can reduce the steady state level
of productivity by 25\% relative to a perfect competition case.
On the dynamic dimension, we find that a 1\% contractionary monetary policy shock
and a 1\% positive markup shocks contract total factor productivity by
3.5\% and 0.1\% respectively on an annual basis. Idiosyncratic shocks
can have a large impact on changes in productivity depending on the
centrality of the sector in the network.