American Economic Journal: Macroeconomics
no. 2, April 2022
Since sectors differ in their sensitivity to interest rates, monetary policy produces inefficient sectoral fluctuations. In a model with sectoral heterogeneity, I show that policymakers should weight sectors proportionally to their interest elasticities, account for dynamic demand effects from durable goods, and systematically utilize forward guidance to reduce sectoral volatility. A calibrated model confirms these recommendations and finds that neglecting sectoral volatility produces substantial welfare losses. The best-performing policy rule stabilizes a sectorally weighted measure of inflation, plus lags of past durable inflation.
"Sectoral Heterogeneity and Monetary Policy."
American Economic Journal: Macroeconomics,
General Aggregative Models: Keynes; Keynesian; Post-Keynesian
Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Price Level; Inflation; Deflation
Business Fluctuations; Cycles
Interest Rates: Determination, Term Structure, and Effects