N°22-97: Monetary Policy Bottlenecks

Analyzing US data on corporate linkages, we investigate the transmission of monetary policy through intermediate goods markets. Our analysis uncovers three key insights. First, contractionary monetary conditions lead to production disruptions in financially constrained firms. Second, these disruptions extend to the suppliers and customers of such firms. Third, disruptions intensify when financially constrained firms purchase or sell specialized goods. These findings suggest that monetary tightening creates bottlenecks in supply chains, compelling firms to curtail production when they cannot substitute their constrained business partners. “Monetary policy bottlenecks” amplify the impact of monetary policy beyond the standard balance sheet channel of transmission.