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Chain of Production as a Monetary Propagation Mechanism

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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.

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File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah106.pdf
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Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 106.

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Length: 31 pages
Date of creation: Jun 1999
Publication status: published in Journal of Monetary Economics, 48(2), pp. 437-462, October 2001.
Handle: RePEc:cre:crefwp:106
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  1. repec:nbr:nberre:0126 is not listed on IDEAS
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  23. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
  24. Ball, Laurence, 1994. "Credible Disinflation with Staggered Price-Setting," American Economic Review, American Economic Association, vol. 84(1), pages 282-289, March.
  25. Roger Gordon, 2006. "Editor, Journal of Economic Literature," American Economic Review, American Economic Association, vol. 96(2), pages 510-511, May.
  26. Alan C. Stockman, 1998. "New evidence connecting exchange rates to business cycles," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 73-89.
  27. Ball, Laurence, 1995. "Disinflation with imperfect credibility," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 5-23, February.
  28. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 127-159.
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  31. Obstfeld, Maurice & Rogoff, Kenneth, 1986. "Ruling out divergent speculative bubbles," Journal of Monetary Economics, Elsevier, vol. 17(3), pages 349-362, May.
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