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The Working Capital Channel and Cross-Sector Comovement

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Author Info

  • Yi Jin

    (The University of Kansas)

  • Zhixiong Zeng

    (Northwestern University)

Abstract

This paper studies cross-sector comovement, one of the defining characteristics of the business cycle, in a monetary framework. We argue that monetary factors might be important for understanding this phenomenon through a working capital channel. We show that in a sticky portfolio adjustment model where firms borrow to finance working capital, a positive money supply shock drives the nominal interest rate down, thereby stimulating firms' borrowing and causing employment to rise in different sectors. A positive aggregate technology shock can also drive the nominal interest rate down upon impact and induce comovement when the elasticity of labor supply is large.

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Bibliographic Info

Article provided by Missouri Valley Economic Association in its journal The Journal of Economics.

Volume (Year): 28 (2002)
Issue (Month): 1 ()
Pages: 51-65

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Handle: RePEc:mve:journl:v:28:y:2002:i:1:p:51-65

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Cited by:
  1. DiCecio, Riccardo, 2009. "Sticky wages and sectoral labor comovement," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 538-553, March.
  2. Riccardo DiCecio, 2008. "Comovement: it's not a puzzle," 2008 Meeting Papers 884, Society for Economic Dynamics.

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