Durable Goods, Inter-Sectoral Linkages and Monetary Policy

Hafedh Bouakez (), Emanuela Cardia () and Francisco J. Ruge-Murcia ()

Cahiers de recherche from CIRPEE

Abstract: Barsky, House and Kimball (2007) show that introducing durable goods into a sticky-price model leads to negative sectoral comovement of production following a monetary policy shock and, under certain conditions, to aggregate neutrality. These results appear to undermine sticky-price models. In this paper, we show that these results are not robust to two prominent and realistic features of the data, namely input-output interactions and limited mobility of productive inputs. When extended to allow for both features, the sticky-price model with durable goods delivers implications in line with VAR evidence on the effects of monetary policy shocks.

Keywords: Durability; input-output interactions; roundabout production; sectoral comovement; monetary policy (search for similar items in EconPapers)
JEL-codes: E21 E23 E31 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2008
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