Discussion paper

DP16465 Bottleneck effects of monetary policy

Is monetary policy transmitted through markets for intermediate goods? Analyzing unique US data on corporate linkages, we document that the financial health of downstream and upstream firms plays a key role in the transmission of monetary policy. Our estimates suggest that conventional contractionary changes in monetary conditions lead to reductions in both the demand and the supply of financially constrained firms downstream and upstream. These reductions create bottlenecks inducing the linked firms "in the middle" to curtail their own activities. Overall these "bottleneck effects" coming from the changes in demand and supply at financially constrained business partners are estimated to have a larger impact on a firm's operations than the firm's own financial conditions.


Garcia-Appendini, E, F Boissay and S Ongena (2022), ‘DP16465 Bottleneck effects of monetary policy‘, CEPR Discussion Paper No. 16465. CEPR Press, Paris & London. https://cepr.org/publications/dp16465