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The Working Capital Channel and Cross-Sector Comovement


  • Yi Jin

    (The University of Kansas)

  • Zhixiong Zeng

    (Northwestern University)


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.

Suggested Citation

  • Yi Jin & Zhixiong Zeng, 2002. "The Working Capital Channel and Cross-Sector Comovement," Journal of Economic Insight (formerly the Journal of Economics (MVEA)), Missouri Valley Economic Association, vol. 28(1), pages 51-65.
  • 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, 2004. "Comovement: it's not a puzzle," 2004 Meeting Papers 113, Society for Economic Dynamics.

    More about this item

    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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