The responses of prices at different stages of production to monetary policy shocks

This paper examines the responses of prices at different stages of producti on to monetary policy shocks. In aggregate price analysis, the VAR of Chris tiano et al. (1996a, 1996b) is used to identify the policy shock as the fed eral funds rate innovation and trace out the responses of prices. In disagg regate price analysis, the adjustment of prices is examined by comparing in flation before and after a recent policy tightening identified by Romer and Romer (1989, 1992). At early stages of production, a monetary tightening c auses input prices to fall more rapidly and by a larger amount than output prices.