Sticky Price Models, Durable Goods, and Real Wage Rigidities
We would like to thank Diogo Lourenço, Manuel Martins, Christian Pierdzioch, Ricardo Reis, and André Silva, seminar participants at cef.up, FEP, and the Reserve Bank of New Zealand, and conference participants at the University of Beira Interior for helpful comments. We also thank two anonymous referees and the editor Pok‐sang Lam for their valuable comments and suggestions. Financial support by the Fundação para a Ciência e a Tecnologia is gratefully acknowledged (Projects: IF/01569/2012/CP0155/CT0001, SFRH/BD/71677/2010, and POCI‐01‐0145‐FEDER‐006890).
Log in with Open Athens, Shibboleth, or your institutional credentials.
If you have previously obtained access with your personal account, Please log in.
If you previously purchased this article, Log in to Readcube.
You previously purchased this article on READCUBE_PURCHASE_DATE. Click on an option below to access.
Logged in as READCUBE_USER. Log out of ReadCube.
Abstract
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.
