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The effects of monetary policy on input inventories

Author

Listed:
  • Dai Tiantian

    (China Economics Management Academy, Central University of Finance and Economics, 39 Xueyuan South Road, Beijing 100081, China)

  • Liu Xiangbo

    (School of Labor and Human Resources, IMI, Renmin University of China, 59 Zhongguancun Street, Beijing 100872, China)

  • Sun Wei

    (Hanqing Advanced Institute of Economics and Finance, Renmin University of China, 59 Zhongguancun Street, Beijing 100872, China)

Abstract

This paper explores both the long-run and short-run effects of monetary policy on input inventories in a search model with monetary propagation and two-stage production. Inventories arise endogenously due to search frictions. In the long run, we analytically show that an increase in the money growth rate has hump-shaped real effects on steady-state input inventory investment, input inventory-to-sales ratio as well as sales. These effects are driven by both the extensive and intensive margins in the finished goods market. We then calibrate the model to the US data to study the short-run effects of monetary policy. We first show that our model can reproduce the stylized facts of input inventories quite well and then find that input inventories amplify aggregate fluctuations over business cycles.

Suggested Citation

  • Dai Tiantian & Liu Xiangbo & Sun Wei, 2020. "The effects of monetary policy on input inventories," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-34, January.
  • Handle: RePEc:bpj:bejmac:v:20:y:2020:i:1:p:34:n:14
    DOI: 10.1515/bejm-2017-0251
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    References listed on IDEAS

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    More about this item

    Keywords

    business cycles; input inventories; monetary policy; monetary search;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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