Endogenous Production Networks and Non-Linear Monetary Transmission

Mishel Ghassibe

No 1449, Working Papers from Barcelona School of Economics

Abstract: I develop a tractable dynamic sticky-price model, where input-output linkages are formed endogenously. The model delivers cyclical properties of networks that are consistent with those I estimate using sectoral and firm-level data, conditional on identified real and nominal shocks. A novel source of state dependence in nominal rigidities arises: the strength of complementarities in price setting and monetary non-neutrality increase in the number of suppliers optimally chosen by firms. As a result, the model simultaneously rationalizes the following observed non-linearities in monetary transmission. First, there is cycle dependence : the magnitude of real GDP's response to a monetary shock is procyclical. Second, there is path dependence: non-neutrality of real GDP is higher following previous periods of loose monetary policy. Third, there is size dependence : larger monetary contractions shrink the network and generate a less than proportional decrease in GDP relative to smaller contractions.

Keywords: monetary transmission; state dependence; endogenous production networks (search for similar items in EconPapers)
JEL-codes: C67 E23 E52 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-dge, nep-mon and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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