Durable goods pose a challenge for standard sticky-price models because the near constancy of their shadow value and their apparent price flexibility lead to perverse and counterfactual economic implications, such as the tendency of the durables and nondurables sectors to move in opposite...

Several approaches to finding the second-order approximation to a dynamic model have been proposed recently. This paper differs from the existing literature in that it makes use of the Magnus and Neudecker (1999) definition of the Hessian matrix. The key result is a linear system of equations...