S,s pricing in a dynamic equilibrium model with heterogeneous sectors

We study the impact of two-sided nominal shocks in a dynamic, equilibrium macroeconomic model. Goods complementarity differs across sectors as do the costs of changing prices. Even when strategic complementarities are equal across the sectors, the systematic differences in costs of price adjustment mean nominal shocks have a 'sizeable' impact on aggregate output and prices. We exploit certain fundamental properties of Markov processes to obtain analytical expressions for the stationary distributions of aggregate output and prices for the case of two sectors. (C) 2011 Elsevier B.V. All rights reserved.