UC Riverside

This dissertation is comprised of three chapters. In the first chapter, two independent empirical studies are performed to shed more light on the cross-sectoral impacts of monetary policy. High degree of interest sensitivity of durable goods is now a stylized fact in the literature of monetary policy. This literature, however, does not provide a clear and consensual explanation for the modalities of this stylized fact. The results of first study indicate that there is no straightforward relationship between the degree of durability and the interest-sensitivity of durables. While, the second study concludes that, in response to monetary policy shocks, productive durables behave differently from consumer durables.

The Second chapter questions the traditional assumption under which consumer goods and capital have perfectly distinguished applications. This chapter then explores some macroeconomic implications of including overlapping functions of consumer durables and capital in a new Keynesian general equilibrium model. The simulated results of the model show that introducing overlapping functions of consumer durables and capital improves the quantitative performance of the standard new Keynesian model along several dimensions. Moreover, the model is able to resolve durable co-movement puzzle and to generate co-moving responses of durable spending and non-durable spending to monetary policy shocks, consistently with the empirical evidence. Additionally, in contrast with the standard theory that finds a counter-factual extraordinary sensitive responses of consumer durables and capital to monetary policy shocks, the model yields responses more in tune with actual observations.

The third chapter investigates the role of durables in the transmission mechanism of energy price shocks. This chapter shows that considering a separate sector for durables in a new Keynesian dynamic general equilibrium model may improve the quantitative results of the model to generate the impulse response functions which are more inline with empirical evidence. The simulated results of the model show that the response of output to energy price shocks would be more sensitive, when durables are considered as a separate sector. However, in this model the total consumption, including both durables and non-durables, rises. Such a reaction is at odds with empirical evidence. However, considering the assumption of overlapping functions of durables and capital can eliminate this peculiar reaction of the model. The simulated results of this model also show that there is a positive direct relationship between the level durability and the sensitivity of output response to energy price shocks.