- Credit frictions and the comovement between durable and non-durable consumption
- Number of pages
- Amsterdam: De Nederlandsche Bank
- DNB Working Paper
- Volume | Edition (Serie)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
According to Monacelli (2009), a standard New-Keynesian model augmented with credit frictions solves the outstanding challenge to generate a joint decline of durable and non-durable consumption during a monetary tightening. This paper shows that his success in generating positive comovement between durables and non-durables is solely due to assumptions about price-stickiness in the durable goods sector and that the introduction of credit frictions actually makes the comovement problem harder to solve.
JEL classiffication: E44, E52
Keywords: New-Keynesian models, financial frictions, general equilibrium
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