Abstract
We derive conditions under which heterogeneity in nominal price rigidity amplifies the aggregate fluctuations from idiosyncratic shocks and demonstrate its quantitative implications: (1) GDP volatility from sectoral productivity shocks doubles when nominal price rigidity is heterogeneous rather than homogeneous; (2) sectoral productivity shocks can jointly rationalize the volatility of sectoral prices, aggregate prices, and GDP contrary to aggregate productivity shocks; (3) heterogeneity in nominal rigidity changes the sectors from which aggregate fluctuations originate. We also discuss implications for aggregate price dynamics and the role of alternative monetary policy rules.
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