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HEALTH CARE INFLATION AND ITS IMPLICATIONS FOR MONETARY POLICY
Author(s) -
Yagihashi Takeshi,
Du Juan
Publication year - 2015
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12204
Subject(s) - economics , inflation (cosmology) , monetary policy , homogeneous , monetary economics , shock (circulatory) , demand shock , macroeconomics , construct (python library) , keynesian economics , medicine , physics , theoretical physics , computer science , thermodynamics , programming language
Motivated by recent findings on the cyclical movement of both health and health spending, we construct a general equilibrium model that distinguishes health care demand from the demand for other goods. Using this model, we are able to generate inflation dynamics and cyclicality of health that match the US data. When the model is subjected to an expansionary monetary policy shock, it yields different output and inflation responses compared with a two‐sector model with homogeneous demand. We show that the trade‐off between leisure and health spending plays an important role in model dynamics. The model further predicts different degrees of inflation stabilization across sectors when a shift in the monetary policy occurs . ( JEL E52, E31, E32, I10)