Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/271905 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10261
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Using firm-level survey data from Germany, this paper asks how do supply constraints propagate monetary policy shocks? To answer this question, we first offer a general discussion on the measurement of supply constraints. We show that capacity utilization, a widely accepted measure of bottlenecks and slack, is only an imperfect measure for supply constraints as a whole. Consequently, we distinguish between input and capacity constraints and show that this distinction is crucial to understand the propagation of monetary policy in the presence of supply constraints: the probability to increase prices rises sharply for input constraint firms in response to an expansionary monetary policy shock, independent of their level of capacity utilization. This result challenges a recent literature that argues that capacity utilization is a sufficient statistic to understand the propagation of aggregate shocks in the presence of production limitations.
Subjects: 
supply constraints
capacity utilization
price setting
local projections
monetary policy
JEL: 
E31
E52
C22
Document Type: 
Working Paper
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