Does the Price Level Adjust Faster to Aggregate Technology Shocks than to Monetary Policy Shocks? LUIGI PACIELLO* Abstract This paper studies the speed of price adjustment to aggregate technology shocks and to monetary policy shocks in a Bayesian VAR model. Determining the speed of price adjustment to di¤erent types of shocks provides guidance into evaluating the ability of existing sticky price models to capture price dynamics and price setting behavior. This paper shows that, in the United States, the price level adjusts much faster to aggregate technology shocks than to monetary policy shocks. Results are robust to di¤erent identi…cation assumptions, data de…nitions and measures of aggregate prices. JEL Classi…cation: E31, E4, C11, C3 Keywords: Bayesian VAR, price responsiveness, monetary policy shocks, technology shocks

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Email: [email protected]. Mailing address: Einaudi Institute for Economics and Finance, Via dei Due Macelli, 73, 00187 Roma. This paper is a revised version of Chapter I in my PhD dissertation at Northwestern University. I thank Martin Eichenbaum, Giorgio Primiceri and Mirko Wiederholt for invaluable comments and advice.