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Sectoral Co-Movement, Monetary-Policy Shock, and Input-Output Structure

  • Nao Sudo

    (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: nao.sudou@boj.or.jp))

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The co-movement of output across the sector producing non- durables (that is, non-durable 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 (that is, sticky non-durables prices and flexible durables prices) cannot generate this feature. We argue that an input-output structure provides a solution to this problem. Here we develop a two-sector model with an input-output 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 co-movement is induced.

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File URL: http://www.imes.boj.or.jp/research/papers/english/08-E-15.pdf
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Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 08-E-15.

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Date of creation: Jul 2008
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Handle: RePEc:ime:imedps:08-e-15
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  1. Erceg, Christopher J. & Levin, Andrew T., 2002. "Optimal monetary policy with durable and non-durable goods," Working Paper Series 0179, European Central Bank.
  2. Ohanian, Lee E & Stockman, Alan C & Kilian, Lutz, 1995. "The Effects of Real and Monetary Shocks in a Business Cycle Model with Some Sticky Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1209-34, November.
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  25. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-58, December.
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