TY  - SER
AU  - Baqaee, David R.
AU  -  Farhi, Emmanuel
AU  -  Sangani, Kunal
TI  - The Supply-Side Effects of Monetary Policy
SN  - 0022-3808
PB  - Journal of Political Economy
KW  -  Demand Shocks
KW  -  Supply Shocks
KW  -  Supply-Side Effects
KW  - Monetary Policy
N2  - 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
UR  - https://www.journals.uchicago.edu/doi/10.1086/727287
ER  -