IMF Working Papers

Monetary Policy and the Relative Price of Durable Goods

By Alessandro Cantelmo, Giovanni Melina

December 22, 2017

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Alessandro Cantelmo, and Giovanni Melina. Monetary Policy and the Relative Price of Durable Goods, (USA: International Monetary Fund, 2017) accessed September 18, 2024

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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.

Subject: Consumption, Dynamic stochastic general equilibrium models, Housing, Housing prices, Inflation, National accounts, Prices, Sticky prices

Keywords: Consumption, Durable goods, Durables, Housing, Housing prices, Inflation, Markup shock, Monetary policy, Monetary policy shock, Nondurable goods, Nondurables, Nondurables price, Price indexation, Price stickiness, Relative price, Sticky prices, WP

Publication Details

  • Pages:

    81

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2017/290

  • Stock No:

    WPIEA2017290

  • ISBN:

    9781484335451

  • ISSN:

    1018-5941