Firm Heterogeneity and the Transmission of Central Bank Credit Policy

Konrad Kuhmann

No 12, Berlin School of Economics Discussion Papers from Berlin School of Economics

Abstract: I study the role of firm heterogeneity for the transmission of unconventional monetary policy in the form of “credit policy” à la Gertler and Karadi (2011). To this end, I lay out a Two-Agent New-Keynesian model with financially constrained and unconstrained firms and a financial intermediary with an endogenous leverage constraint. I find that, when firms are heterogeneous, aggregate investment is substantially less responsive to credit policy compared to an identical firm setting. Moreover, when debt markets are segmented, credit policy directed exclusively at financially unconstrained firms is most effective. My paper provides a tractable framework to illustrate mechanisms through which firm heterogeneity affects the transmission of credit policy. According to my findings, the presence of firm heterogeneity can be expected to make credit policy less effective than predicted by a representative agent framework.

Keywords: Credit Policy; Firm Heterogeneity; Investment; Financial Frictions (search for similar items in EconPapers)
JEL-codes: E50 E52 E58 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2023-03-23
New Economics Papers: this item is included in nep-ban, nep-bec, nep-cba, nep-des, nep-dge, nep-fdg, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bdp:dpaper:0012

DOI: 10.48462/opus4-4917

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