Labour market frictions, monetary policy and durable goods

Federico Nicolas Di Pace, Matthias Hertweck

    Research output: Working paper

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    Abstract

    The standard two-sector monetary business cycle model suffers from an important deficiency. Since durable good prices are more flexible than non-durable good prices, optimising households build up the stock of durable goods at low cost after a monetary contraction. Consequently, sectoral outputs move in opposite directions. This paper finds that labour market frictions help to understand the so-called sectoral “comovement puzzle”. Our benchmark model with staggered Right-to-Manage wage bargaining closely matches the empirical elasticities of output, employment and hours per worker across sectors. The model with Nash bargaining, in contrast, predicts that firms adjust employment exclusively along the
    extensive margin.
    Original languageEnglish
    PublisherUniversity of Konstanz
    Number of pages33
    Publication statusPublished - 6 Jun 2012

    Publication series

    NameDepartment of Economics Working Paper Series
    PublisherUniversity of Konstanz
    No.2012-09

    Keywords

    • Durable production
    • Labour market frictions
    • Sectoral comovement
    • Monetary policy

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