Seminar Inventory and Monetary Policy

Abstract

We show that the transmission of monetary policy depends sharply on the inventory position of firms. A monetary policy shock affects output and prices more than twice as much when firms hold low inventories. In the high-inventory regime the same shock produces responses that are small and often statistically insignificant. The result holds at the aggregate, sectoral, and firm levels. We rationalize it in a New Keynesian model with stockouts and sticky prices.

Authors: Marco Brianti, Vito Cormun, and Jianlin Wang.