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Monetary policy and the relative price of durable goods

Alessandro Cantelmo () and Giovanni Melina ()

Journal of Economic Dynamics and Control, 2018, vol. 86, issue C, 1-48

Abstract: In a Structural Vector-Autoregressive model of the US, the response of the relative price of durables to a monetary policy 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 two-sector New-Keynesian (NK) models. Durables prices are estimated to be as sticky as those of nondurables, leading to a flat relative price response to a monetary policy 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 NK models with durable and nondurable goods, and for the conduct of monetary policy.

Keywords: Monetary policy; Durables; Nondurables; Price stickiness; Relative price (search for similar items in EconPapers)
JEL-codes: E52 E32 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Monetary Policy and the Relative Price of Durable Goods (2017) Downloads
Working Paper: Monetary Policy and the Relative Price of Durable Goods (2015) Downloads
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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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