Household Production, Services and Monetary Policy
A distinctive feature of market-provided services is that some of them have close substitutes at home. Households may therefore switch between consuming home and market services in response to changes in the real wage - the opportunity cost of working at home - and changes in the price of market services. In order to analyze and quantify the implications of this trade-off for monetary policy, I embed a household sector into an otherwise standard sticky price DSGE model, which I calibrate to the U.S. economy. The results of the model are twofold. At the sectoral level, household production augments the service sector's New Keynesian Phillips curve with a sizable extra component that co-moves negatively with the output gap term, lowering the incentive of service sector firms to change their prices. This mechanism endogenously amplifies the real effects of a monetary shock in that sector, unlike in the nondurable goods sector for which households cannot manufacture substitutes at home. At the aggregate level, household production also implies more sluggish prices and a stronger response of real macroeconomic variables to a monetary shock. Some empirical support for this theory is provided.
|Date of creation:||01 Aug 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
|Order Information:||Web: http://www.imf.org/external/pubs/pubs/ord_info.htm|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Morten O. Ravn & Harald Uhlig, 2001.
"On Adjusting the HP-Filter for the Frequency of Observations,"
CESifo Working Paper Series
479, CESifo Group Munich.
- Uhlig, H.F.H.V.S. & Ravn, M., 1997. "On Adjusting the H-P Filter for the Frequency of Observations," Discussion Paper 1997-50, Tilburg University, Center for Economic Research.
- Ravn, Morten O & Uhlig, Harald, 2001. "On Adjusting the HP-Filter for the Frequency of Observations," CEPR Discussion Papers 2858, C.E.P.R. Discussion Papers.
- Francisco J. Buera & Joseph P. Kaboski, 2006.
"The Rise of the Service Economy,"
2006 Meeting Papers
496, Society for Economic Dynamics.
- Tekin, Erdal, 2003.
"Child Care Subsidies, Wages, And Employment of Single Mothers,"
Royal Economic Society Annual Conference 2003
200, Royal Economic Society.
- Erdal Tekin, 2007. "Childcare Subsidies, Wages, and Employment of Single Mothers," Journal of Human Resources, University of Wisconsin Press, vol. 42(2).
- Tekin, Erdal, 2002. "Child Care Subsidies, Wages, and Employment of Single Mothers," IZA Discussion Papers 517, Institute for the Study of Labor (IZA).
- Greenwood,J. & Seshadri,A. & Yorukoglu,M., 2002.
"Engines of liberation,"
1, Wisconsin Madison - Social Systems.
- Jeremy Greenwood & Ananth Seshadri & Mehmet Yorukoglu, 2003. "Engines of Liberation," RCER Working Papers 503, University of Rochester - Center for Economic Research (RCER).
- Jeremy Greenwood & Ananth Seshadri & Mehmet Yorukoglu, 2002. "Engines of Liberation," Economie d'Avant Garde Research Reports 2, Economie d'Avant Garde.
- BOUAKEZ, Hafedh & CARDIA, Emanuela & RUGE-MURCIA, Francisco J., 2005.
"The Transmission of Monetary Policy in a Multi-Sector Economy,"
Cahiers de recherche
20-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Hafedh Bouakez & Emanuela Cardia & Francisco J. Ruge-Murcia, 2009. "The Transmission Of Monetary Policy In A Multisector Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(4), pages 1243-1266, November.
- BOUAKEZ, Hafed & CARDIA Emanuela & RUGE-MURCIA, Francisco, 2005. "The Transmission of Monetary Policy in a Multi-Sector Economy," Cahiers de recherche 2005-16, Universite de Montreal, Departement de sciences economiques.
- Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
- Patricia M. Anderson & Phillip B. Levine, 1999.
"Child Care and Mothers' Employment Decisions,"
JCPR Working Papers
64, Northwestern University/University of Chicago Joint Center for Poverty Research.
- Gordon Cleveland & Morley Gunderson & Douglas Hyatt, 1996. "Child Care Costs and the Employment Decision of Women: Canadian Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 29(1), pages 132-51, February.
- repec:bla:restud:v:72:y:2005:i:1:p:109-133 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:12/206. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow)or (Hassan Zaidi)
If references are entirely missing, you can add them using this form.