English, Article, Journal or magazine article edition: Inventory-Theoretic Model of Money Demand, Multiple Goods, and Price Dynamics Hirokazu Ishise; Nao Sudo

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Inventory-Theoretic Model of Money Demand, Multiple Goods, and Price Dynamics
Author
  • Hirokazu Ishise
  • Nao Sudo
Physical Description
  • preprint
Notes
  • Despite the theoretical prediction based on sticky-price models, it is empirically suggested that the tie between the frequencies of price adjustment across goods and the relative price responses of goods (price index of specific goods over non-durable aggregate price index) to a monetary policy change is limited.We offer an alternative view of the price dynamics of goods. We develop a multi-sector extension of an inventory-theoretic model of money demand (segmented market model). In our model, the diversity in the characteristics of goods, that is, durability, luxuriousness and cash intensity (the portion of the payment that is paid by cash in the purchase of goods), yields the dispersion of relative prices responses to a monetary policy shock, across goods. The model implies that the relative prices of durables, luxuries and less cash-intensive goods tend to decline in a monetary contraction. We test the empirical plausibility of our model, using two approaches: a measure of monetary policy shock developed by Romer and Romer (2004), and a factor-augmented VAR used in Bernanke et al. (2005). In both econometric methodologies, we find that the data are consistent with our model, in terms of durability and luxuriousness.
  • Baumol-Tobin model, Durable; Luxury, Credit goods, Monetary policy
  • RePEc:ime:imedps:08-e-19
Language
  • English
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