Baqaee, David R. <br/><br/>
The Supply-Side Effects of Monetary Policy 

 -  Journal of Political Economy  2024 
 - 1065-1112 
<br/><br/> We propose a supply-side channel for the transmission of monetary policy. We show that when high-markup firms have lower pass-throughs than low-markup firms, then positive demand shocks, such as monetary expansions, alleviate cross-sectional misallocation by reallocating resources to high-markup firms. Consequently, positive "demand shocks" are accompanied by endogenous positive "supply shocks" that raise productivity and lower inflation. We derive a tractable, four-equation model where monetary shocks generate hump-shaped productivity responses. In our calibration, the supply-side effect amplifies the total impact of monetary shocks on output by about 70%. We provide empirical evidence validating our model's predictions using identified monetary shocks. 
<br/><br/><label>ISSN: </label>0022-3808 
<br/><br/><label>Subjects--Topical Terms: </label><br/> Demand Shocks<br/> Supply Shocks<br/> Supply-Side Effects<br/>Monetary Policy