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- Title
Nominal Rigidities, Monetary Policy and Pigou Cycles.
- Authors
Auray, Stéphane; Gomme, Paul; Guo, Shen
- Abstract
Capturing the boom phase of Pigou cycles and resolving the comovement problem require positive sectoral comovement. This article addresses these observations using a two-sector New Keynesian model. Price rigidities dampen movements in the relative price of durables following a monetary policy shock. Durables and non-durables are estimated to be complements in utility, allowing for a resolution of the comovement problem for modest degrees of price rigidity. Nominal rigidities also make firms forward-looking in their pricing behaviour, which leads to relative price dynamics that generate positive sectoral comovement in the boom phase of a Pigou cycle.
- Subjects
BUSINESS cycles; MONETARY policy; DURABLE consumer goods; NONDURABLE goods; PRODUCTION (Economic theory); PRICING; KEYNESIAN economics
- Publication
Economic Journal, 2013, Vol 123, Issue 568, p455
- ISSN
0013-0133
- Publication type
Article
- DOI
10.1111/ecoj.12000