Monetary Policy and the Relative Price of Durable Goods

Author/Editor:

Alessandro Cantelmo ; Giovanni Melina

Publication Date:

December 22, 2017

Electronic Access:

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Summary:

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.

Series:

Working Paper No. 2017/290

Subject:

English

Publication Date:

December 22, 2017

ISBN/ISSN:

9781484335451/1018-5941

Stock No:

WPIEA2017290

Pages:

81

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