Work

The Cost Channel of Monetary Transmission

Year: 2001

Type: article

Abstract: This paper presents evidence that the cost channel may be an important part of the monetary transmission mechanism. We first highlight three puzzles that might be explained by a cost channel of monetary transmission. We then provide evidence on the importance of working capital and argue why monetary contractions can affect output through a supply channel as well as the traditional demand-type channels. Using a vector autoregression analysis, we investigate the effects across industries. Following a monetary contraction, many industries exhibit periods of falling output and rising price-wage ratios, consistent with a supply shock. The effects are noticeably more pronounced during the period before 1979.

Source: NBER Macroeconomics Annual

DOI: 10.1086/654443

Authors: Marvin J. Barth,, Valerie A. Ramey

Institutions: Bank for International Settlements, National Bureau of Economic Research, University of California San Diego

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: bronze

Funder: National Science Foundation