We propose a supply-side channel for the transmission of monetary policy. We study an economy with heterogeneous firms, sticky prices, and endogenous markups. We show that if, as is consistent with the empirical evidence, bigger firms have higher markups and lower pass-throughs than smaller...

The Covid-19 crisis is an unusual and seemingly all-encompassing economic shock. On the one hand, it was unquestionably a negative demand shock that, for fixed prices and incomes, reduced household spending. On the other hand, it was also unquestionably a negative supply shock that reduced...