Durable Goods, Inter-Sectoral Linkages and Monetary Policy

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Durable Goods, Inter-Sectoral Linkages and Monetary Policy

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Hafedh Bouakez
Emanuela Cardia
Francisco J. Ruge-Murcia

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Abstract

Barsky, House and Kimball (2007) show that introducing durable goods into a sticky-price model leads to negative sectoral comovement of production following a monetary policy shock and, under certain conditions, to aggregate neutrality. These results appear to undermine sticky-price models. In this paper, we show that these results are not robust to two prominent and realistic features of the data, namely input-output interactions and limited mobility of productive inputs. When extended to allow for both features, the sticky-price model with durable goods delivers implications in line with VAR evidence on the effects of monetary policy shocks.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 0821.

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Date of creation: 2008
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Handle: RePEc:lvl:lacicr:0821

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-09-20 (All new papers)
NEP-CBA-2008-09-20 (Central Banking)
NEP-MAC-2008-09-20 (Macroeconomics)
NEP-MON-2008-09-20 (Monetary Economics)

References listed on IDEAS
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Erceg, Christopher & Levin, Andrew, 2006. "Optimal monetary policy with durable consumption goods," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1341-1359, October. [Downloadable!] (restricted)
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Other versions:
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Other versions:
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