Sticky Price Models and Durable Goods

Robert Barsky, Christopher House () and Miles Spencer Kimball
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Robert Barsky: University of Michigan

Macroeconomics from EconWPA

Abstract: This paper shows that there are striking implications that stem from including durable goods in otherwise conventional sticky price models. The behavior of these models depends heavily on whether durable goods are present and whether these goods have sticky prices. If long-lived durables have sticky prices, then even small durables sectors can cause the model to behave as though most prices were sticky. Conversely, if durable goods prices are flexible then the model exhibits unwelcome behavior. Flexibly priced durables contract during periods of economic expansion. The tendency towards negative comovement is very robust and can be so strong as to dominate the aggregate behavior of the model. In an instructive limiting case, money has no effects on aggregate output even though most prices in the model are sticky.

Keywords: Sticky prices; Durables; Comovement; Neutrality (search for similar items in EconPapers)
JEL-codes: E21 E30 E31 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cba and nep-mac
Date: 2005-01-27
Note: Type of Document - pdf; pages: 41
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http://129.3.20.41/eps/mac/papers/0501/0501031.pdf (application/pdf)

Related works:
Journal Article: Sticky-Price Models and Durable Goods (2007)
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