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Sales of Durable Goods and the Real Effects of Monetary Policy

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  • Wenbin Wu

    (Fudan University)

Abstract

Despite their prevalence in the microdata, sales (i.e., temporary price cuts) are often ignored by macroeconomists. If sales are taken into account, price rigidity is small in the data. Using the microdata underlying the Consumer Price Index (CPI), I first demonstrate that sales of durable goods have a substantial impact on the aggregate price index, and that the price index decreases gradually after these sales. To quantify the changes in the real effects of monetary policy due to sales, I propose a two-sector menu-cost model, in which sales are allowed. The model, which is able to match salient features of the microdata, predicts that the real effects of monetary policy will be significantly overestimated if sales of durable goods are not taken into consideration. Compared to my benchmark model, the model without sales and the Calvo model calibrated to the frequency of regular price changes both generate much greater real effects of monetary policy. (Copyright: Elsevier)

Suggested Citation

  • Wenbin Wu, 2022. "Sales of Durable Goods and the Real Effects of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 43, pages 80-92, January.
    • Handle: RePEc:red:issued:18-459
    DOI: 10.1016/j.red.2021.01.002
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    1. Ray, Sourav & Snir, Avichai & Levy, Daniel, 2023. "Retail Pricing Format and Rigidity of Regular Prices," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-1.

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    More about this item

    Keywords

    Price rigidity; Monetary policy; Sales;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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