This paper resolves the sectoral comovement problem between nondurable and durable outputs that arises in response to a monetary shock in a two-sector sticky price model with flexibly priced durable goods. We analytically demonstrate that the non-separability between aggregate consumption and...

This paper examines the role that wealth effects on labour supply play in a two-sector sticky-price model that includes non-durables and housing. Careful analysis of a two-sector sticky-price model reveals that whether there are wealth effects on labour supply fundamentally changes the nature of...

This paper studies a two-sector New Keynesian model that captures the hump-shaped response of non-durable and durable spending to a monetary shock when non-durable prices are sticky and durable goods are flexibly priced. Based on the estimated parameters, we show that habit formation and...

In the last few decades, the world economy has witnessed the expansion of trade, especially in the number of exchanged varieties, the so-called “extensive margins”. In a theoretical model where extensive margins in both tradable and non-tradable sectors are endogenously determined, it is...

This paper investigates a consumption-real exchange rate anomaly from the open macroeconomics literature known as the Backus-Smith puzzle. We both analytically and quantitatively examine how an expansion of trade along extensive margins can contribute to the puzzle's resolution. Our argument is...