A key feature of the business cycle data is that output, employment and investment move up and down together in dierent sectors of the economy. However, standard business cycle models fail to generate this business cycle sectoral co-movement. In this paper we propose a two-sector business cycle...

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 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 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...