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Sticky Price Models, Durable Goods, and Real Wage Rigidities
Author(s) -
ÇENESIZ M. ALPER,
GUIMARÃES LUÍS
Publication year - 2018
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12499
Subject(s) - economics , durable good , aggregate (composite) , neutrality , shock (circulatory) , wage , monetary economics , new keynesian economics , vector autoregression , odds , econometrics , macroeconomics , monetary policy , labour economics , logistic regression , medicine , philosophy , materials science , epistemology , composite material
The standard two‐sector New Keynesian model with durable goods is at odds with conventional wisdom and vector autoregression (VAR) evidence: Following a monetary shock, the model generates (i) either negative or no comovement across sectoral outputs and (ii) aggregate neutrality of money when durable goods' prices are flexible. We reconcile theory with evidence by incorporating real wage rigidities into the standard model: As long as durable goods' prices are more flexible than nondurable goods' prices, we obtain positive sectoral comovement and, thus, aggregate nonneutrality of money.