sticky prices and comovement of business cycle

A defining characteristic of business cycle is comovements of economic variables across sectors. But it is not easy to replicate these comovements in standard real business cycle models. Traditionally, however, not only the productivity shocks emphasized in real business cycle models but also monetary shocks have been believed to be important in explaining business cycles . Following this tradition, a two sector sticky price model is constructed in this paper to examine the sectoral comovements of economic variables under nominal rigidities. It turns out that monetary shocks can generate comovements of sectoral variabl