Sectoral Comovement, Monetary Policy Shocks, and Input-Output Structure

The comovement of output across the sector producing nondurables (i.e., nondurable goods and services) and the sector producing durables is well established in the monetary business cycle literature. However, standard sticky‐price models that incorporate sectoral heterogeneity in price stickiness (i.e., sticky nondurables prices and flexible durables prices) cannot generate this feature. We argue that an input–output (I–O) structure provides a solution to this problem. Here, we develop a two‐sector model with an I–O structure, which is calibrated to the U.S. economy. In the model, each sector’s output affects those of the others by acting as an intermediate input. This connection between the sectors provides a channel through which sectoral comovement is induced.(This abstract was borrowed from another version of this item.)