The Working Capital Channel and Cross-Sector Comovement
AbstractThis 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 InfoArticle provided by Missouri Valley Economic Association in its journal The Journal of Economics.
Volume (Year): 28 (2002)
Issue (Month): 1 ()
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
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- Riccardo DiCecio, 2005.
"Comovement: it's not a puzzle,"
2005-035, Federal Reserve Bank of St. Louis.
- DiCecio, Riccardo, 2009. "Sticky wages and sectoral labor comovement," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 538-553, March.
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