Essays on multi-sector macroeconomic models for policy analysis

This thesis studies multi-sector macroeconomic models suitable for policy analysis. The first and second chapters use a variety of empirical and theoretical macroeconomic models allowing for the consumption of goods with different durability, and analyze which modeling assumptions and features of the economy are crucial for the conduct of monetary policy. The third chapter focuses on the role of fiscal and monetary policies in the Euro Area, thus providing insights about the joint policy stance that have the potential to inform future policy choices. In the fi rst chapter, we challenge a crucial assumption made in the literature of Dynamic Stochastic General Equilibrium (DSGE) models with durable and nondurable goods about their relative price stickiness. We start with a thorough empirical analysis by estimating a Structural Vector Autoregressive model of the US economy, in which we find that the response of the relative price of durables to a monetary policy contraction is either flat or mildly positive. It signi cantly falls only if narrowly de ned as the ratio between new-house and nondurables prices. These findings are then rationalized via the estimation of two-sector New-Keynesian (NK) models. Durables prices are estimated to be as sticky as those of nondurables, leading to a flat relative price response to a monetary policy shock. Conversely, house prices are estimated to be almost flexible. Such results survive several robustness checks and a three-sector extension of the NK model. These findings have implications for building NK models with durable and nondurable goods, and for the conduct of monetary policy. This chapter is based on an article co-authored with Dr. Giovanni Melina (International Monetary Fund) and published in the Journal of Economic Dynamics and Control. The second chapter adds imperfect labor mobility to a two-sector New- Keynesian model with durable and nondurable goods and estimates it with Bayesian methods. We use the model to design optimal monetary policy and find that an inverse relationship between sectoral labor mobility and the optimal weight the central bank should attach to durables inflation arises. Moreover, we show that the combination of nominal wage stickiness and limited labor mobility leads to a nonzero optimal weight for durables inflation even if durables prices were fully flexible. These results survive alternative calibrations and interest-rate rules and point toward a non-negligible role of sectoral labor mobility for the conduct of monetary policy. This chapter is co-authored with Dr. Giovanni Melina (International Monetary Fund). The third chapter of the thesis focuses on the role of shocks and policies in the Euro Area business cycle. We consider the long-term structure of government debt and introduce a financial sector. These features allow the model to account for both the recent nancial and sovereign debt crises, and the effects of the unconventional monetary policy implemented by the European Central Bank. We then determine the joint fi scal and monetary policy stance in the Euro Area and find that it has been expansionary in the aftermath of the financial crisis but has turned to be contractionary after the sovereign debt crisis. The joint effect of the austerity measures taken by governments of European countries and the zero-lower-bound constraint on the monetary policy rate caused the reversion of the policy stance, which was prevented to be even more contractionary only by the quantitative easing implemented by the European Central Bank. This chapter is based on a paper co-authored with Dr. Nicoletta Batini (International Monetary Fund), Dr. Giovanni Melina (International Monetary Fund) and Dr. Stefania Villa (Bank of Italy).