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Collateral Constraints, Sticky Wages, and Monetary Policy

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  • Kwang Hwan Kim

    (Yonsei University)

  • Joonseok Oh

    (Yonsei University)

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    Abstract

    This paper investigates the role of collateral constraints in the transmission of monetary policy shocks in a two-sector sticky price general equilibrium model with nondurable and durable goods. While many researchers have stressed the role of collateral constraints in one-sector sticky price model, it has been relatively less explored in the two-sector sticky price model. This study shows that nominal wage rigidity is crucial for collateral constraints to accelerate the effects of monetary policy shocks on durable spending in the two-sector sticky price general equilibrium model.

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    File URL: ftp://repec.yonsei.ac.kr/repec/yon/wpaper/2014rwp-63.pdf
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    Bibliographic Info

    Paper provided by Yonsei University, Yonsei Economics Research Institute in its series Working papers with number 2014rwp-63.

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    Length: 25pages
    Date of creation: Jan 2014
    Date of revision:
    Handle: RePEc:yon:wpaper:2014rwp-63

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    Related research

    Keywords: durable goods; collateral constraints; sticky nominal wages;

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    1. K. Huang & Z. Liu, . "Staggered price-setting, staggered wage-setting, and business cycle persistence," Working Papers 2000-28, Utah State University, Department of Economics.
    2. Kim, Jinill, 2000. "Constructing and estimating a realistic optimizing model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 329-359, April.
    3. Robert Barsky & Christopher L. House & Miles Kimball, 2005. "Sticky Price Models and Durable Goods," Macroeconomics 0501031, EconWPA.
    4. Matteo Iacoviello & Stefano Neri, 2008. "Housing market spillovers : evidence from an estimated DSGE model," Working Paper Research 145, National Bank of Belgium.
    5. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
    6. Chah, Eun Young & Ramey, Valerie A & Starr, Ross M, 1995. "Liquidity Constraints and Intertemporal Consumer Optimization: Theory and Evidence from Durable Goods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 272-87, February.
    7. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    8. Erceg, Christopher & Levin, Andrew, 2006. "Optimal monetary policy with durable consumption goods," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1341-1359, October.
    9. repec:fth:harver:1435 is not listed on IDEAS
    10. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December.
    11. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    12. Sterk, Vincent, 2010. "Credit frictions and the comovement between durable and non-durable consumption," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 217-225, March.
    13. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
    14. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    15. DiCecio, Riccardo, 2009. "Sticky wages and sectoral labor comovement," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 538-553, March.
    16. Monacelli, Tommaso, 2009. "New Keynesian models, durable goods, and collateral constraints," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 242-254, March.
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