This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

Sectoral Heterogeneity and Monetary Policy

  • Jonathan Kreamer
American Economic Journal: Macroeconomics
vol. 14, no. 2, April 2022
(pp. 123-59)
Download Full Text PDF

Abstract

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.

Citation

Kreamer, Jonathan. 2022. "Sectoral Heterogeneity and Monetary Policy." American Economic Journal: Macroeconomics, 14 (2): 123-59. DOI: 10.1257/mac.20190248

Additional Materials

JEL Classification

  • E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
  • E23 Macroeconomics: Production
  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • E31 Price Level; Inflation; Deflation
  • E32 Business Fluctuations; Cycles
  • E43 Interest Rates: Determination, Term Structure, and Effects
  • E52 Monetary Policy
There are no comments for this article.
Login to Comment