Premium
Monetary Policy with Sectoral Trade‐Offs
Author(s) -
Petrella Ivan,
Rossi Raffaele,
Santoro Emiliano
Publication year - 2019
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12266
Subject(s) - economics , inflation (cosmology) , relative price , consumption (sociology) , production (economics) , welfare , price level , macroeconomics , factor price , monetary economics , microeconomics , market economy , social science , physics , sociology , theoretical physics
We formulate a two‐sector New Keynesian economy featuring sectoral heterogeneity along three dimensions: price stickiness, consumption goods durability, and the usage of input materials in production. These factors affect both inter‐sectoral and intra‐sectoral stabilization. We examine the welfare properties of simple rules that react to alternative measures of final goods price inflation. Due to factor demand linkages, the cost of production in one sector is influenced by price‐setting in the other sector. Therefore, measures of aggregate inflation weighting sectoral prices based on their relative stickiness do not allow one to keep track of the effective speeds of sectoral price adjustment.