Non-separability and sectoral comovement in a sticky price model

Kwang Hwan Kim, Munechika Katayama

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)

Abstract

This paper resolves the sectoral comovement problem between nondurable and durable outputs that arises in response to a monetary shock in a two-sector sticky price model with flexibly priced durable goods. We analytically demonstrate that the non-separability between aggregate consumption and labor can generate the comovement between nondurable and durable outputs in response to a monetary policy shock. We then estimate the degree of non-separability, together with other parameters, using a Bayesian approach. We find that the non-separable preferences are supported by the data and our estimated model generates the sectoral comovement in response to a monetary shock.

Original languageEnglish
Pages (from-to)1715-1735
Number of pages21
JournalJournal of Economic Dynamics and Control
Volume37
Issue number9
DOIs
Publication statusPublished - 2013 Sep 1
Externally publishedYes

Keywords

  • Comovement
  • Durable goods
  • Non-separable preferences
  • Sticky price

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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