Examining sectoral comovement in estimated nominal rigidities models

Comovement of economic activityies across di¤erent sectors in an economy is an important feature of business cycles. Recently Barsky et al (2005) …nd sticky prices models, common monetary business cycle models, do not generate the sectoral comovement and the propataion mechanism is weak in response to monetary shocks if prices in durable goods sector are signi…cantly ‡exible. In this paper, we estimate a sticky prices model with durable goods sector and …nd monetary shocks generate weak but positive sectoral comovement. We also estimate a sticky wages model as an alternative nominal rigidities model and …nd the sticky wages model is more capable of generating sectoral comovment than the sticky prices model.