American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Sticky-Price Models and Durable Goods
American Economic Review
vol. 97,
no. 3, June 2007
(pp. 984–998)
Abstract
The inclusion of a durable goods sector in sticky-price models has strong and unexpected implications. Even if most prices are flexible, a small durable goods sector with sticky prices may be sufficient to make aggregate output react to monetary policy as though most prices were sticky. In contrast, flexibly priced durables with sufficiently long service lives can undo the implications of standard sticky price models. In a limiting case, flexibly priced durables cause monetary policy to have no effect on aggregate output. Our analysis suggests that durable goods prices are the most relevant data for calibrating price rigidity. (JEL E21, E23, E31, E52)Citation
Barsky, Robert, B., Christopher L. House, and Miles S. Kimball. 2007. "Sticky-Price Models and Durable Goods." American Economic Review, 97 (3): 984–998. DOI: 10.1257/aer.97.3.984Additional Materials
JEL Classification
- E21 Macroeconomics: Consumption; Saving; Wealth
- E23 Macroeconomics: Production
- E31 Price Level; Inflation; Deflation
- E52 Monetary Policy