The Working Capital Channel

Melinda Suveg

No 1482, Working Paper Series from Research Institute of Industrial Economics

Abstract: The New Keynesian model, augmented with the working capital channel, predicts that a rise in the policy rate causes firms that use more working capital to increase their prices more, and that the pass-through is gradual because of price rigidity. Using a unique dataset on firm-product-level price indices, I show that a one percentage point monetary policy shock leads to a 6 percent increase in the firm’s price and that the pass-through takes about 4 months. The pass-through in the microdata is 6 times larger than it is implemented in the supply-side block of standard New Keynesian DSGE models.

Keywords: Working capital; Price setting; Inflation; Monetary policy; Pass-through (search for similar items in EconPapers)
JEL-codes: E31 E37 E52 L11 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2023-12-15
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1482

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