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Durable goods, inter-sectoral linkages and monetary policy

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  • Bouakez, Hafedh
  • Cardia, Emanuela
  • Ruge-Murcia, Francisco J.

Abstract

Durable goods pose a challenge for standard sticky-price models because the near constancy of their shadow value and their apparent price flexibility lead to perverse and counterfactual economic implications, such as the tendency of the durables and nondurables sectors to move in opposite directions following a monetary policy shock. This paper introduces input-output interactions and limited input mobility into an otherwise standard sticky-price model with durable and nondurable goods. The extended model generates substantial aggregate effects and positive sectoral comovement following a monetary policy shock, even when durable goods have flexible prices. The latter result is consistent with empirical evidence on the sectoral effects of monetary policy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 5 (May)
Pages: 730-745

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:5:p:730-745

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Durability Input-output interactions Roundabout production Sectoral comovement Monetary policy;

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References

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  1. Robert B. Barsky & Christopher L. House & Miles S. Kimball, 2007. "Sticky-Price Models and Durable Goods," American Economic Review, American Economic Association, vol. 97(3), pages 984-998, June.
  2. Luca Dedola & Francesco Lippi, 2000. "The monetary transmission mechanism; evidence from the industries of five OECD countries," Temi di discussione (Economic working papers) 389, Bank of Italy, Economic Research and International Relations Area.
  3. Carlstrom, Charles T. & Fuerst, Timothy S., 2010. "Nominal Rigidities, Residential Investment, And Adjustment Costs," Macroeconomic Dynamics, Cambridge University Press, vol. 14(01), pages 136-148, February.
  4. Horvath, Michael, 2000. "Sectoral shocks and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 69-106, February.
  5. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
  6. Robert Barsky & Christopher L. House & Miles Kimball, 2003. "Do Flexible Durable Goods Prices Undermine Sticky Price Models?," NBER Working Papers 9832, National Bureau of Economic Research, Inc.
  7. Steve J. Davis & John Haltiwanger, 1991. "Wage Dispersion Between and Within U.S. Manufacturing Plants, 1963-1986," NBER Working Papers 3722, National Bureau of Economic Research, Inc.
  8. Steven J. Davis & John Haltiwanger, 1999. "Sectoral Job Creation and Destruction Responses to Oil Price Changes," NBER Working Papers 7095, National Bureau of Economic Research, Inc.
  9. Dale W. Jorgenson & Kevin J. Stiroh, 2000. "Raising the Speed Limit: U.S. Economic Growth in the Information Age," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 125-236.
  10. Valerie A. Ramey & Matthew D. Shapiro, 2001. "Displaced Capital: A Study of Aerospace Plant Closings," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 958-992, October.
  11. BOUAKEZ, Hafed & CARDIA Emanuela & RUGE-MURCIA, Francisco, 2005. "The Transmission of Monetary Policy in a Multi-Sector Economy," Cahiers de recherche 2005-16, Universite de Montreal, Departement de sciences economiques.
  12. Barth, Marvin J III & Ramey, Valerie A, 2000. "The Cost Channel of Monetary Transmissions," University of California at San Diego, Economics Working Paper Series qt7rm5q9sk, Department of Economics, UC San Diego.
  13. Charles T. Carlstrom & Timothy S. Fuerst, 2006. "Co-movement in sticky price models with durable goods," Working Paper 0614, Federal Reserve Bank of Cleveland.
  14. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
  15. Erceg, Christopher & Levin, Andrew, 2006. "Optimal monetary policy with durable consumption goods," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1341-1359, October.
  16. Peersman, Gert & Smets, Frank, 2002. "The industry effects of monetary policy in the euro area," Working Paper Series 0165, European Central Bank.
  17. Monacelli, Tommaso, 2009. "New Keynesian models, durable goods, and collateral constraints," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 242-254, March.
  18. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  19. Lee Junhee, 2009. "Examining Sectoral Co-Movement in Estimated Nominal Rigidities Models," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-22, May.
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Citations

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Cited by:
  1. BOUAKEZ, Hafedh & CARDIA, Emanuela & RUGE-MURCIA, Francisco J., 2009. "Sectoral Price Rigidity and Aggregate Dynamics," Cahiers de recherche 2009-01, Universite de Montreal, Departement de sciences economiques.
  2. Stephane Auray & Paul Gomme & Shen Guo, 2009. "Nominal Rigidities, Monetary Policy and Pigou Cycles," Working Papers 09005, Concordia University, Department of Economics, revised 06 Apr 2010.
  3. Olivier Cardi & Romain Restout, 2013. "Imperfect Mobility Of Labor Across Sectors: A Reappraisal Of The Balassa-Samuelson Effect," Working Papers of BETA 2013-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  4. M. Alper Çenesiz & Luís Guimarães, 2013. "Sticky Price Models, Durable Goods, and Real Wage Rigidities," CEF.UP Working Papers 1305, Universidade do Porto, Faculdade de Economia do Porto.
  5. Di Pace, Federico & Hertweck, Matthias S., 2012. "Labour Market Frictions, Monetary Policy, and Durable Goods," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62052, Verein für Socialpolitik / German Economic Association.
  6. Ivan Petrella & Raffaele Rossi & Emiliano Santoro, 2012. "Monetary Policy with Sectoral Linkages and Durable Goods," Discussion Papers 12-19, University of Copenhagen. Department of Economics.
  7. repec:van:wpaper:vuecon-sub-13-00002 is not listed on IDEAS
  8. Sevim Kosem Alp, 2010. "Optimal Monetary Policy under Sectoral Heterogeneity in Inflation Persistence (Sektorel Enflasyon Ataleti Farkliligi Altinda Optimal Para Politikasi)," Working Papers 1004, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  9. Been-Lon Chen & Shian-Yu Liao, 2013. "Capital, Credit Constraints and the Comovement between Consumer Durables and Nondurables," IEAS Working Paper : academic research 13-A011, Institute of Economics, Academia Sinica, Taipei, Taiwan.
  10. Munechika Katayama & Kwang Hwan Kim, . "Intertemporal Substitution and Sectoral Comovement in a Sticky Price Model," Departmental Working Papers 2010-01, Department of Economics, Louisiana State University.
  11. Ivan Petrella & Emiliano Santoro, . "Optimal Monetary Policy with Durable Consumption Goods and Factor Demand Linkages," EPRU Working Paper Series 2009-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised May 2009.

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