Download This PaperThe Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy
39 Pages Posted: 18 Nov 2019 Last revised: 17 Jan 2020
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The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy
The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy
The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy
The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy
Date Written: January 15, 2020
Abstract
Realistic heterogeneity in price rigidity interacts with heterogeneity in sectoral size and input-output linkages in the transmission of monetary policy shocks. Quantitatively, heterogeneity in price stickiness is the central driver for real effects. Input-output linkages and consumption shares alter the identity of the most important sectors to the transmission. Reducing the number of sectors decreases monetary non-neutrality with a similar impact response of inflation. Hence, the initial response of inflation to monetary shocks is not sufficient to discriminate across models and ignoring heterogeneous consumption shares and input-output linkages identifies the wrong sectors from which the real effects originate.
Keywords: input-output linkages, multi-sector Calvo model, monetary policy
JEL Classification: E31, E32, O40
Suggested Citation: Suggested Citation
