TY - JOUR
T1 - Monetary Policy with Sectoral Trade-offs
AU - Rossi, Raffaele
AU - Santoro, Emiliano
AU - Petrella, Ivan
PY - 2017/9/6
Y1 - 2017/9/6
N2 - We formulate a two‐sector New Keynesian economy featuring sectoral heterogeneity along three dimensions: price stickiness, consumption goods durability, and the usage of input materials in production. These factors affect both inter‐sectoral and intra‐sectoral stabilization. We examine the welfare properties of simple rules that react to alternative measures of final goods price inflation. Due to factor demand linkages, the cost of production in one sector is influenced by price‐setting in the other sector. Therefore, measures of aggregate inflation weighing sectoral prices based on their relative stickiness do not allow to keep track of the effective speeds of sectoral price adjustment.
AB - We formulate a two‐sector New Keynesian economy featuring sectoral heterogeneity along three dimensions: price stickiness, consumption goods durability, and the usage of input materials in production. These factors affect both inter‐sectoral and intra‐sectoral stabilization. We examine the welfare properties of simple rules that react to alternative measures of final goods price inflation. Due to factor demand linkages, the cost of production in one sector is influenced by price‐setting in the other sector. Therefore, measures of aggregate inflation weighing sectoral prices based on their relative stickiness do not allow to keep track of the effective speeds of sectoral price adjustment.
UR - https://research.manchester.ac.uk/en/publications/7f2901bf-d0ba-4d32-8bcd-1a391c42dcff
U2 - 10.1111/sjoe.12266
DO - 10.1111/sjoe.12266
M3 - Article
JO - The Scandinavian Journal of Economics
JF - The Scandinavian Journal of Economics
ER -