MARKET-STRUCTURE AND THE EFFECTIVENESS OF MONETARY-POLICY - A CROSS INDUSTRY STUDY

Empirical rejections of the strong form of the new classical macroecon omics at the aggregate economy level leave open the extent to which it is the rational expectations or short-run market clearing assumptions of these models that do not hold. Estimating rational expectations mo dels across industries can help shed light on this empirical question. Price and quantity equations for 14 US manufacturing industries are e stimated under rational expectations with respect to monetary policy. Links between price inertia, monetary policy effectiveness and several measures of market structure are investigated. We find evidence that there are substantial differences in behaviour across markets. The str ongest links are found with respect to the output effects of monetary policy, where the concentration ratio and mark-up of price over margin al cost are important. The durability of the product is important for the price effects of monetary policy.