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Home production and sticky price models: Implications for monetary policy

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  • Lester, Robert

Abstract

I analyze the consequences of including home production in a New Keynesian model with staggered price setting. Home production amplifies responses to technology and monetary policy shocks. Compared to a model without home production, the model generates close to twice the output response to a monetary policy shock. I consider the implications of several nominal interest rate rules and show that a traditional Taylor rule lacks its usual attractive properties. Alternatively, strict inflation targeting implements the constrained efficient allocation.

Suggested Citation

  • Lester, Robert, 2014. "Home production and sticky price models: Implications for monetary policy," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 107-121.
    • Handle: RePEc:eee:jmacro:v:41:y:2014:i:c:p:107-121
    DOI: 10.1016/j.jmacro.2014.05.002
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    1. Safonova, Dasha, 2017. "Home production, employment, and monetary policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 57-66.
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    More about this item

    Keywords

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    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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