Monetary Policy and the Relative Price of Durable Goods

December 22, 2017

Preview Citation

Format: Chicago

Alessandro Cantelmo, and Giovanni Melina. Monetary Policy and the Relative Price of Durable Goods, (USA: International Monetary Fund, 2017) accessed December 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

In a SVAR 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 are rationalized via the estimation of a two-sector New-Keynesian (NK) models. Durables prices are estimated to be as sticky as nondurables, leading to a flat relative price response to a monetary shock. Conversely, house prices are estimated to be almost flexible. Such results survive several robustness checks and a three-sector extension of the NK model. These findings have implications for building two-sector NK models with durable and nondurable goods, and for the conduct of monetary policy.

Subject: Consumption, Dynamic stochastic general equilibrium models, Housing, Housing prices, Inflation, National accounts, Prices, Sticky prices

Keywords: Consumption, Durable goods, Durables, Housing, Housing prices, Inflation, Markup shock, Monetary policy, Monetary policy shock, Nondurable goods, Nondurables, Nondurables price, Price indexation, Price stickiness, Relative price, Sticky prices, WP

Publication Details

Pages:

81
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/290
Stock No:

WPIEA2017290
ISBN:

9781484335451
ISSN:

1018-5941

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