Durable Goods, Inter-Sectoral Linkages, and Monetary Policy

H. Bouakez, E. Cardia and F. Ruge-Murcia
Journal of Economic Dynamics and Control (2011) 35(5) ,730-745.

Barsky, House and Kimball (2007) show that introducing durable goods into a sticky-price model leads to negative sectoral comovement of production following a monetary policy shock and, under certain conditions, to aggregate neutrality. These results appear to undermine sticky-price models. In this paper, we show that these results are not robust to two prominent and realistic features of the data, namely input-output interactions and limited mobility of productive inputs. When extended to allow for both features, the sticky-price model with durable goods delivers implications in line with VAR evidence on the effects of monetary policy shocks.