Labour Market Frictions, Monetary Policy, and Durable Goods

Federico Di Pace and Matthias Hertweck

VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century from Verein für Socialpolitik / German Economic Association

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.

Keywords: durable production; labour market frictions; sectoral comovement; monetary policy (search for similar items in EconPapers)
JEL-codes: E21 E23 E31 E52 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Labor Market Frictions, Monetary Policy, and Durable Goods (2019)
Working Paper: Labour market frictions, monetary policy and durable goods (2016)
Working Paper: Labour Market Frictions, Monetary Policy and Durable Goods (2012)
Working Paper: Labour Market Frictions, Monetary Policy and Durable Goods (2012)
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