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Bottleneck effects of monetary policy

Author

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  • Ongena, Steven
  • Boissay, Frederic
  • Garcia-Appendini, Emilia

Abstract

Is monetary policy transmitted through markets for intermediate goods? Analyzing unique US data on corporate linkages, we document that the financial health of downstream and upstream firms plays a key role in the transmission of monetary policy. Our estimates suggest that conventional contractionary changes in monetary conditions lead to reductions in both the demand and the supply of financially constrained firms downstream and upstream. These reductions create bottlenecks inducing the linked firms "in the middle" to curtail their own activities. Overall these "bottleneck effects" coming from the changes in demand and supply at financially constrained business partners are estimated to have a larger impact on a firm's operations than the firm's own financial conditions.

Suggested Citation

  • Ongena, Steven & Boissay, Frederic & Garcia-Appendini, Emilia, 2022. "Bottleneck effects of monetary policy," CEPR Discussion Papers 16465, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16465
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    Keywords

    Monetary policy transmission; Supply chain; Aggregate demand; Cost channel;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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