Monetary Policy and the Relative Price of Durable Goods

Alessandro Cantelmo and Giovanni Melina

No 2017/290, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; durable goods; monetary policy; durables; nondurables; price stickiness; relative price; nondurable goods; markup shock; price indexation; nondurables price; monetary policy shock; Sticky prices; Housing; Housing prices; Consumption; Inflation (search for similar items in EconPapers)
Pages: 81
Date: 2017-12-22
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Related works:
Journal Article: Monetary policy and the relative price of durable goods (2018)
Working Paper: Monetary Policy and the Relative Price of Durable Goods (2015)
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