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Melvin Stephens, Estimating Program Benefits

Sticky-price models and durable goods

Publication Abstract

Barsky, R.B., C.L. House, and Miles Kimball. 2007. "Sticky-price models and durable goods." American Economic Review, 97(3): 984-998.

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.

DOI:10.1257/000282807781267156 (Full Text)

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