Monetary Policy and the Relative Price of Durable Goods
IMF Working Papers, December 22, 2017
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- Monetary Policy and the Relative Price of Durable Goods
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Bibliographic details
- Authors: Alessandro Cantelmo, Giovanni Melina
- Published: December 22, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484335451.001
Key findings
- 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.
- The relative price of durables significantly falls only if narrowly defined as the ratio between new-house and nondurables prices.
- Durables prices are estimated to be as sticky as nondurables, producing a flat relative price response to a monetary shock.
- House prices are estimated to be almost flexible.
- These results survive several robustness checks and a three-sector extension of the New-Keynesian (NK) model.
Modeling and estimation
- Empirical approach: SVAR model of the US to trace the response of relative durable prices to a monetary contraction.
- Structural model: Estimation of a two-sector New-Keynesian (NK) model to rationalize SVAR findings.
- Price stickiness estimates:
- Durables: as sticky as nondurables (explicit parity described in summary).
- Houses: almost flexible (near-flexible pricing behavior reported).
Robustness and extensions
- Findings are robust to several robustness checks (unspecified in summary) and to a three-sector extension of the NK model.
- The narrow definition of relative price (new-house to nondurables price ratio) is the specification under which a significant fall is observed.
Implications for policy and modeling
- Implications for building two-sector NK models with durable and nondurable goods:
- Models should reflect that durables exhibit price stickiness similar to nondurables.
- House-price behavior should be modeled as substantially more flexible than durable and nondurable goods.
- Implications for the conduct of monetary policy:
- Monetary contractions may not lower relative durable prices broadly, except under narrow definitions involving new-house prices.
- Policy assessments that rely on relative-price channels between durables and nondurables should account for the near-flexibility of house prices and the stickiness of durables prices.
Alessandro Cantelmo, and Giovanni Melina. "Monetary Policy and the Relative Price of Durable Goods", IMF Working Papers 2017, 290 (2017), accessed 9/12/2026, https://doi.org/10.5089/9781484335451.001
Content in this bundle
- Monetary Policy and the Relative Price of Durable Goods, WP/17/290, December 2017