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Sticky Price Models, Durable Goods, and Real Wage Rigidities

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  • M. Alper Çenesiz

    ()
    (cef.up, Faculdade de Economia, Universidade do Porto)

  • Luís Guimarães

    ()
    (cef.up, Faculdade de Economia, Universidade do Porto)

Abstract

The standard two-sector New Keynesian model with durable goods is at odds with conventional wisdom and VAR evidence: Following a monetary shock, it generates (i) either negative or no comovement across sectoral outputs, and (ii) aggregate neutrality of money when durable-goods' prices are flexible. We reconcile theory with evidence by incorporating real wage rigidities into the standard model: As long as durable-goods' prices are more flexible than nondurable-goods' prices, we obtain positive sectoral comovement and, thus, aggregate non-neutrality of money.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series CEF.UP Working Papers with number 1305.

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Length: 15 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:por:cetedp:1305

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Keywords: Durable goods; Real Wage Rigidities; Comovement; Money.;

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  1. Monacelli, Tommaso, 2009. "New Keynesian models, durable goods, and collateral constraints," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 242-254, March.
  2. BOUAKEZ, Hafedh & CARDIA, Emanuela & RUGE-MURCIA, Francisco J., 2008. "Durable Goods, Inter-Sectoral Linkages and Monetary Policy," Cahiers de recherche 15-2008, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  3. Olivier Blanchard & Jordi Galí, 2005. "Real wage rigidities and the new Keynesian model," Economics Working Papers 912, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2005.
  4. Erceg, Christopher & Levin, Andrew, 2006. "Optimal monetary policy with durable consumption goods," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1341-1359, October.
  5. Amato, Jeffery D. & Laubach, Thomas, 2003. "Estimation and control of an optimization-based model with sticky prices and wages," Journal of Economic Dynamics and Control, Elsevier, vol. 27(7), pages 1181-1215, May.
  6. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  7. Duval, Romain & Vogel, Lukas, 2007. "How do nominal and real rigidities interact? A tale of the second best," MPRA Paper 7282, University Library of Munich, Germany.
  8. 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.
  9. 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.
  10. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  11. Robert Barsky & Christopher L. House & Miles Kimball, 2005. "Sticky Price Models and Durable Goods," Macroeconomics 0501031, EconWPA.
  12. Nao Sudo, 2012. "Sectoral Comovement, Monetary Policy Shocks, and Input–Output Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(6), pages 1225-1244, 09.
  13. Shimer, Robert, 2012. "Wage rigidities and jobless recoveries," Journal of Monetary Economics, Elsevier, vol. 59(S), pages S65-S77.
  14. Laurence Ball & David Romer, 1990. "Real Rigidities and the Non-Neutrality of Money," NBER Working Papers 2476, National Bureau of Economic Research, Inc.
  15. 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.
  16. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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