BoE paper highlights ‘cost-of-carry’ channel of monetary policy
High inventory levels can boost transmission, authors say
Monetary policy has a greater impact on inflation when firms’ inventory levels are high, research published by the Bank of England on November 14 finds.
Interest rates affect the “cost of carry” associated with maintaining inventories, the working paper notes. “Since changing prices is one way to manage inventory levels, there may well be important links from the cost of carrying inventories to inflation dynamics,” say authors Diego Rodrigues and Tim Willems.
They test this hypothesis on the basis
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