Pricing Behaviour and the Cost-Push Channel of Monetary Policy

Abstract

This paper examines the empirical and theoretical status of the cost-push channel of monetary policy, according to which interest rates affect the costs of production and hence pricing behaviour. Particular attention is paid to modelling the cost-push channel in a manner consistent with cost-plus pricing theory, which is identified as the canonical model of pricing behaviour in heterodox economics. It is shown that different variants of cost-plus pricing behaviour give rise to qualitatively different specifications of the cost-push channel, with important consequences for macrodynamics and the conduct of monetary policy.

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