Sticky Price Models, Durable Goods, and Real Wage Rigidities

Alper Çenesiz, Luis Guimaraes

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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.
Original languageEnglish
JournalJournal of Money Credit and Banking
Early online date23 May 2018
DOIs
Publication statusEarly online date - 23 May 2018

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