To appropriately model the observed slow response of real variables to nominal shocks, macroeconomic models augment nominal with real rigidities. One very popular way of modelling such a real rigidity is to assume a non-constant demand elasticity. While there has been conducted ample empirical...

We use a novel disaggregate sectoral euro area dataset with a regional breakdown that allows explicit estimation of the sectoral component of price changes (rather than interpreting the idiosyncratic component as sectoral as done in other papers). Employing a new method to extract factors from...