@article{67723092670a4073abedbf5e7f149c4c,
title = "Services deepening and the transmission of monetary policy",
abstract = "The structural transformation from manufacturing to services comes with a process of services deepening: the services share of intermediate inputs rises over time. Moreover, inflation reacts less to monetary policy shocks in countries that are more intensive in services intermediates. We rationalize these facts using a two-sector New Keynesian model where trends in sectoral productivities generate endogenous variations in the Input–Output matrix. Services deepening reduces the contemporaneous response of inflation to monetary policy shocks through a marginal cost channel. Since services prices are stickier than manufacturing prices, the rise of services intermediates raises the sluggishness of sectoral marginal costs and inflation rates.",
author = "Alessandro Galesi and O. Rachedi",
note = "Funding Information: We thank the Editor (Dirk Krueger), four anonymous referees, Hafedh Bouakez, Francesco Furlanetto, Patrick Gruning, John Lewis, Emiliano Santoro, and presentation participants at the CEFER - Bank of Lithuania, Norges Bank, National Bank of Slovakia, Banco Central de Chile, Universitat de Barcelona, the SAEe Meeting in Bilbao, the IBEO Workshop in Alghero, the Dynare Conference in Rome, the Workshop in Macro Banking and Finance in Rome, the IWH/INFER Workshop on Challenges and Implications of Inflationary Dynamics in Halle, and the ECB Conference on Understanding Inflation in Frankfurt for useful comments and suggestions. This paper was previously circulated under the title “Structural Transformation, Services Deepening, and the Transmission of Monetary Policy”. The views expressed in this paper are those of the authors and do not necessarily represent the views of the Banco de Espa{\~n}a or the Eurosystem. Publisher Copyright: {\textcopyright} The Author(s) 2018. Published by Oxford University Press on behalf of European Economic Association. All rights reserved.",
year = "2019",
month = aug,
day = "1",
doi = "10.1093/jeea/jvy041",
language = "English",
volume = "17",
pages = "1261--1293",
journal = "Journal of the European Economic Association",
issn = "1542-4766",
publisher = "Wiley-Blackwell",
number = "4",
}