The Cost Channel of Monetary Transmissions

Marvin J Barth and Valerie Ramey

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: This paper presents evidence that the "cost channel" may be an important part of the monetary transmission mechanism. We argue that if working capital is an essential component of production and distribution, monetary contractions can affect output through a supply channel as well as the traditional demand-type channels. We specify an industry equilibrium model and use it to interpret the results of a VAR analysis. We find that following a monetary contraction, many industries exhibit periods of falling output and rising price-wage ratios, consistent with a supply shock in our model. We also show that the effects are noticeably more pronounced during the period before 1979.

Keywords: cost channel; monetary transmission mechanism (search for similar items in EconPapers)
Date: 2000-04-17
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Citations: View citations in EconPapers (12)

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Related works:
Chapter: The Cost Channel of Monetary Transmission (2002)
Working Paper: The Cost Channel of Monetary Transmission (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:ucsdec:qt7rm5q9sk

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