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Monetary Policy and the Relative Price of Durable Goods
Author:
Mr. Alessandro Cantelmo
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Mr. Giovanni Melina
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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 290
Language:
English
Publication Date:
22 Dec 2017
DOI:
https://doi.org/10.5089/9781484335451.001
ISBN:
9781484335451
ISSN:
1018-5941
Pages:
81
Keywords:
WP; durable goods; monetary policy; durables; nondurables; price stickiness; relative price; nondurable goods; markup shock; price indexation; nondurables price; monetary policy shock; Sticky prices; Housing; Housing prices; Consumption; Inflation
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund