Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1482: The Working Capital Channel

Melinda Suveg ()
Additional contact information
Melinda Suveg: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden

Abstract: The New Keynesian model, augmented with the working capital channel, predicts that a rise in the policy rate causes firms that use more working capital to increase their prices more, and that the pass-through is gradual because of price rigidity. Using a unique dataset on firm-product-level price indices, I show that a one percentage point monetary policy shock leads to a 6 percent increase in the firm’s price and that the pass-through takes about 4 months. The pass-through in the microdata is 6 times larger than it is implemented in the supply-side block of standard New Keynesian DSGE models.

Keywords: Working capital; Price setting; Inflation; Monetary policy; Pass-through

JEL-codes: E31; E37; E52; L11

Language: English

48 pages, December 15, 2023

Full text files

wp1482.pdf PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to Elisabeth Gustafsson ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2024-02-05 17:12:21.