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Chain of Production as a Monetary Propagation Mechanism

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Abstract

This paper studies a general equilibrium model with multiple stages of production and sticky prices. Working through the input-output relations among industries at different stages and the timing of firms' pricing decisions, the model generates persistent fluctuations in both the inflation rate and aggregate output following a monetary shock. The persistence is larger, the greater the number of production stages. With a sufficient number of stages, the real persistence is arbitrarily large.

Suggested Citation

  • Kevin X. D. Huang & Zheng Liu, 1999. "Chain of Production as a Monetary Propagation Mechanism," Cahiers de recherche CREFE / CREFE Working Papers 106, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:106
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    Cited by:

    1. Kevin Huang & Z. Liu, "undated". "Vertical international trade as a monetary transmission mechanism in an open economy," Working Papers 2000-07, Utah State University, Department of Economics.
    2. Huang, Kevin X. D. & Liu, Zheng, 2001. "Production chains and general equilibrium aggregate dynamics," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 437-462, October.
    3. Smets, Frank & Wouters, Raf, 2002. "Openness, imperfect exchange rate pass-through and monetary policy," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 947-981, July.

    More about this item

    Keywords

    Chain of Production; Persistence; Monetary Policy;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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

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