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Monetary Policy with Sectoral Trade‐Offs

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Listed:
  • Ivan Petrella
  • Raffaele Rossi
  • Emiliano Santoro

Abstract

We formulate a two‐sector New Keynesian economy featuring sectoral heterogeneity along three dimensions: price stickiness, consumption goods durability, and the usage of input materials in production. These factors affect both inter‐sectoral and intra‐sectoral stabilization. We examine the welfare properties of simple rules that react to alternative measures of final goods price inflation. Due to factor demand linkages, the cost of production in one sector is influenced by price‐setting in the other sector. Therefore, measures of aggregate inflation weighting sectoral prices based on their relative stickiness do not allow one to keep track of the effective speeds of sectoral price adjustment.

Suggested Citation

  • Ivan Petrella & Raffaele Rossi & Emiliano Santoro, 2019. "Monetary Policy with Sectoral Trade‐Offs," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(1), pages 55-88, January.
    • Handle: RePEc:bla:scandj:v:121:y:2019:i:1:p:55-88
    DOI: 10.1111/sjoe.12266
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    Cited by:

    1. Federico Di Pace & Christoph Görtz, 2021. "Monetary Policy, Sectoral Comovement and the Credit Channel," CESifo Working Paper Series 9142, CESifo.
    2. Petrella, Ivan & Rossi, Raffaele & Santoro, Emiliano, 2014. "Discretion vs. timeless perspective under model-consistent stabilization objectives," Economics Letters, Elsevier, vol. 122(1), pages 84-88.
    3. Neyer, Ulrike & Stempel, Daniel, 2025. "Household inflation heterogeneity and the relative price elasticity channel of monetary policy," Economic Modelling, Elsevier, vol. 144(C).
    4. Partsch, Emil Holst & Petrella, Ivan & Santoro, Emiliano, 2026. "Consumer durables and monetary policy according to HANK," Journal of Monetary Economics, Elsevier, vol. 157(C).
    5. Santoro, Sergio & Weber, Henning, 2023. "Micro price heterogeneity and optimal inflation," Occasional Paper Series 322, European Central Bank.
    6. Swapnil Singh & Roel Beetsma, 2018. "Optimal Monetary Policy Under Sectoral Interconnections," De Economist, Springer, vol. 166(3), pages 309-336, September.
    7. Ida, Daisuke, 2020. "Sectoral inflation persistence and optimal monetary policy," Journal of Macroeconomics, Elsevier, vol. 65(C).
    8. Glocker, Christian & Piribauer, Philipp, 2021. "Digitalization, retail trade and monetary policy," Journal of International Money and Finance, Elsevier, vol. 112(C).
    9. Cantelmo, Alessandro & Melina, Giovanni, 2023. "Sectoral labor mobility and optimal monetary policy," Macroeconomic Dynamics, Cambridge University Press, vol. 27(1), pages 1-26, January.
    10. Federico Di Pace & Matthias Hertweck, 2019. "Labor Market Frictions, Monetary Policy, and Durable Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 274-304, April.
    11. Federico Di Pace & Christoph Görtz, 2021. "Sectoral comovement, monetary policy and the credit channel," Bank of England working papers 925, Bank of England.
    12. Vedanta Dhamija & Ricardo Nunes & Roshni Tara, 2023. "House Price Expectations and Inflation Expectations: Evidence from Survey Data," School of Economics Discussion Papers 0823, School of Economics, University of Surrey.
    13. Xia, Tian, 2020. "The role of intermediate goods in international monetary cooperation," Journal of International Money and Finance, Elsevier, vol. 100(C).
    14. Gong, Liutang & Wang, Chan & Zou, Heng-fu, 2016. "Optimal monetary policy with international trade in intermediate inputs," Journal of International Money and Finance, Elsevier, vol. 65(C), pages 140-165.
    15. Cantelmo, Alessandro & Melina, Giovanni, 2018. "Monetary policy and the relative price of durable goods," Journal of Economic Dynamics and Control, Elsevier, vol. 86(C), pages 1-48.

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    • N - Economic History

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