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New Keynesian models, durable goods, and collateral constraints

  • Monacelli, Tommaso

Econometric evidence suggests that, in response to monetary policy shocks, durable and non-durable spending co-move positively, and durable spending exhibits a much larger sensitivity to the shocks. A standard two-sector New Keynesian model with perfect financial markets is at odds with these facts. The introduction of a borrowing constraint, where durables play the role of collateral assets, helps in reconciling the model with the empirical evidence.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 56 (2009)
Issue (Month): 2 (March)
Pages: 242-254

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Handle: RePEc:eee:moneco:v:56:y:2009:i:2:p:242-254
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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