Chain of Production as a Monetary Propagation Mechanism

This paper studies a general equilibrium model with multiple stages of production and sticky prices. Working through the input-output relations among industries at different stages and the timing of firms' pricing decisions, the model generates persistent fluctuations in both the inflation rate and aggregate output following a monetary shock. The persistence is larger, the greater the number of production stages. With a sufficient number of stages, the real persistence is arbitrarily large.