Monetary Policy and the Relative Price of Durable Goods
82 Pages Posted: 18 Jan 2018
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Monetary Policy and the Relative Price of Durable Goods
Date Written: December 2017
Abstract
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.
Keywords: Monetary policy, durables, nondurables, price stickiness, relative price, Monetary Policy (Targets, Instruments, and Effects)
JEL Classification: E52, E32
Suggested Citation: Suggested Citation