Labour market frictions, monetary policy and durable goods
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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.
Di Pace , F N & Hertweck , M 2012 ' Labour market frictions, monetary policy and durable goods ' Department of Economics Working Paper Series , no. 2012-09 , University of Konstanz .
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