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Structural transformation, services deepening, and the transmission of monetary policy

Author

Listed:
  • Alessandro Galesi

    () (Banco de España)

  • Omar Rachedi

    () (Banco de España)

Abstract

Advanced economies are undergoing a structural transformation from manufacturing to services. We document that structural change comes with a process of services deepening: over time, both services and manufacturing become more intensive in service inputs. We argue that structural transformation and services deepening affect the transmission of monetary policy by increasing the relative importance of services, which have stickier prices than manufacturing. We study the implications of the U.S. sectoral reallocation with a New Keynesian model with two sectors connected by an input-output matrix, which varies endogenously over time. The rise of services dampens the responses of aggregate and sectoral inflation rates to a monetary policy shock. The changes in the responses of sectoral inflation rates are entirely driven by services deepening.

Suggested Citation

  • Alessandro Galesi & Omar Rachedi, 2016. "Structural transformation, services deepening, and the transmission of monetary policy," Working Papers 1615, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1615
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/16/Fich/dt1615e.pdf
    File Function: First version, July 2016
    Download Restriction: no

    References listed on IDEAS

    as
    1. Juan S. Mora-Sanguinetti & Nuno Garoupa, 2015. "Litigation in Spain 2001-2010: Exploring the market for legar services," Working Papers 1505, Banco de España;Working Papers Homepage.
    2. Alessandro Galesi & Omar Rachedi, 2016. "Structural transformation, services deepening, and the transmission of monetary policy," Working Papers 1615, Banco de España;Working Papers Homepage.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.
    2. repec:eee:eecrev:v:101:y:2018:i:c:p:210-229 is not listed on IDEAS
    3. Burriel, Pablo & Galesi, Alessandro, 2018. "Uncovering the heterogeneous effects of ECB unconventional monetary policies across euro area countries," European Economic Review, Elsevier, vol. 101(C), pages 210-229.
    4. Alessandro Galesi & Omar Rachedi, 2016. "Structural transformation, services deepening, and the transmission of monetary policy," Working Papers 1615, Banco de España;Working Papers Homepage.

    More about this item

    Keywords

    New Keynesian model; intermediate inputs; input-output matrix;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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