【IMIWorkingPaperNo.1605[EN]】TheEffectsofMonetaryPolicyonInputInventories

【Abstract】

This paper explores the long-run and short-run effects of monetary policy on input inventories in a search model with monetary prorogation and two-stage production. Inventories arise endogenously due to search frictions. In the long run, monetary policy has hump-shaped real effects on steady-state input inventory investment, inventory-to-sales ratio as well as sales. We show that the effect of an increase in the money growth rate is driven by both the extensive and intensive margin in the finished goods market. The model is then calibrated to the U.S. data to study the short-run effect of monetary policy. We find that our model can reproduce the stylized facts of input inventories well and input inventories can amplify aggregate fluctuations.

【Keywords】

monetary shock    input inventories     business cycles     monetary search

【Author】

Dai Tiantian, Renmin University of China

Liu Xiangbo, Research Fellow of IMI; Assistant Professor, Hanqing Advanced Institute of Economics and Finance, RUC