Monetary Policy Transmission amid Demand Reallocations

Julien Bengui, Lu Han and Gaelan MacKenzie

No 19409, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Large swings in the expenditure shares of goods and services at the start of the pandemic have contributed to the inflation surge, posing new challenges for monetary policy. Using a multi-sector model featuring upward labor adjustment frictions, we analyze the transmission of monetary policy during a demand reallocation episode, focussing on sectoral heterogeneity in inflation and output responses. Following an unexpected contractionary monetary policy shock, (constrained) expanding sectors primarily respond by lowering prices, while (unconstrained) contracting sectors reduce output more significantly. At the aggregate level, monetary policy is thus more effective at curbing inflation when a larger proportion of sectors are expanding or expected to be expanding in the near future.

JEL-codes: E31 E52 (search for similar items in EconPapers)
Date: 2024-08
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP19409 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Monetary Policy Transmission amid Demand Reallocations (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:19409

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP19409

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().