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Credit frictions and the comovement between durable and non-durable consumption

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  • Sterk, Vincent

Abstract

Frictions in lending between households have been proposed as a solution to the difficulties new-Keynesian models have in predicting a decline in both durable and non-durable consumption following a monetary tightening. By revisiting a standard new-Keynesian framework with collateral constraints, it is shown that the presence of such credit frictions in fact makes it more difficult to generate the joint decline. The intuitive reasons behind this result are provided, which should be helpful in developing models that are more successful in generating a positive comovement between durables and non-durables.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:moneco:v:57:y:2010:i:2:p:217-225
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