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Monetary Policy and the Relative Price of Durable Goods

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  • Alessandro Cantelmo
  • Giovanni Melina

Abstract

In a VAR model of the US, the response of the relative price of durables to a monetary contraction is either flat or mildly positive. It significantly falls only if narrowly defined as the ratio between new house and nondurables prices. These findings survive three identification strategies and across subsamples. Then, they are rationalized via the estimation of a two-sector New-Keynesian model. Here, the degree of overall durables price stickiness is not dramatically lower than that of nondurables. Such macroeconometric results are close to recent microeconometric evidence. Moreover, they suggest that monetary policy is not very distortive of sectoral allocations.

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  • Alessandro Cantelmo & Giovanni Melina, 2015. "Monetary Policy and the Relative Price of Durable Goods," CESifo Working Paper Series 5328, CESifo.
  • Handle: RePEc:ces:ceswps:_5328
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    Cited by:

    1. Rui Faustino, 2019. "Deep Habits in New Keynesian model with durable goods," Working Papers REM 2019/0106, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    2. Alessandro Cantelmo & Giovanni Melina, 2017. "Sectoral Labor Mobility and Optimal Monetary Policy," IMF Working Papers 2017/040, International Monetary Fund.
    3. Batini, Nicoletta & Melina, Giovanni & Villa, Stefania, 2019. "Fiscal buffers, private debt, and recession: The good, the bad and the ugly," Journal of Macroeconomics, Elsevier, vol. 62(C).
    4. Cantelmo, Alessandro & Melina, Giovanni, 2018. "Monetary policy and the relative price of durable goods," Journal of Economic Dynamics and Control, Elsevier, vol. 86(C), pages 1-48.
    5. Shesadri Banerjee & Parantap Basu & Chetan Ghate, 2020. "A Monetary Business Cycle Model For India," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1362-1386, July.
    6. Krustev, Georgi & Casalis, André, 2020. "Cyclical drivers of euro area consumption: what can we learn from durable goods?," Working Paper Series 2386, European Central Bank.
    7. Fang‐Shuo Chang & Shiu‐Sheng Chen & Po‐Yuan Wang, 2020. "Politics and the UK's monetary policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(5), pages 486-522, November.

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    More about this item

    Keywords

    monetary policy; durables; nondurables; comovement; relative price; DSGE; Bayesian estimation; SVAR; sign restrictions; narrative approach;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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