Monetary Policy with Sectoral Linkages and Durable Goods

Ivan Petrella, Raffaele Rossi and Emiliano Santoro

No 12-19, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: We study the normative implications of a New Keynesian model featuring intersectoral trade of intermediate goods between two sectors that produce durables and non-durables. The interplay between durability and sectoral production linkages fundamentally alters the intersectoral stabilization trade-off as it emerges in otherwise standard two-sector models. We compare the welfare properties of a timeless-perspective monetary policy with the performance of simple instrumental rules that adjust the policy rate in response to the output gap and alternative aggregate measures of final goods price inflation. Aggregating durable and non-durable inflation depending on the relative degrees of sectoral price stickiness may induce a severe bias. Input materials attenuate the response of sectoral inflations to movements in the real marginal costs, so that the effective slopes of the sectoral supply schedules are not properly accounted for by conventional measures of core inflation.

Keywords: Durable Goods; Input-Output Interactions; Monetary Policy; Interest Rate Rules (search for similar items in EconPapers)
JEL-codes: E23 E32 E52 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2012-10-11
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.econ.ku.dk/english/research/publications/wp/dp_2012/1219.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:1219

Access Statistics for this paper

More papers in Discussion Papers from University of Copenhagen. Department of Economics Oester Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().