Heterogeneous UIPDs Across Firms: Spillovers from U.S. Monetary Policy Shocks

Miguel Acosta Henao (), María Alejandra Amado (), David Pérez Reyna () and Montserrat Martí ()
Additional contact information
Miguel Acosta Henao: Central Bank of Chile
María Alejandra Amado: Bank of Spain
David Pérez Reyna: Universidad de los Andes
Montserrat Martí: Central Bank of Chile

No 21387, Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE

Abstract: This paper investigates the granular transmission of U.S. monetary policy shocks to deviations from the uncovered interest rate parity (UIPDs) in emerging economies. Using a comprehensive dataset from Chile that accounts for firm-bank relationships and the time-variant characteristics of both firms and banks, we uncover several key findings: (1) Shocks to the federal funds rate (FFR) increase banks’ costs of foreign borrowing; (2) these higher credit costs disproportionately affect small firms, raising their UIPDs more than for large firms; (3) this size-differentiated impact stems from the relatively higher interest rates on domestic currency loans faced by small firms; (4) in contrast, interest rates on dollar-denominated loans respond homogeneously across all firms; (5) we find no differential effect on loan quantities, suggesting an active role of credit supply and demand. We rationalize these findings with a small open economy model of corporate default that incorporates heterogeneous firms borrowing from domestic banks in both foreign and domestic currencies. In our model, a higher FFR reduces the marginal cost of defaulting on domestic-currency debt for small firms more than for large firms

Keywords: Uncovered interest rate parity; U.S. monetary policy; bank lending; firm financing; firm heterogeneity (search for similar items in EconPapers)
JEL-codes: E43 E44 F30 F41 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2025-06-04
New Economics Papers: this item is included in nep-mon and nep-sbm
References: Add references at CitEc
Citations:

Downloads: (external link)
https://repositorio.uniandes.edu.co/bitstreams/han ... 228/dcede2025-15.pdf Full text (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:col:000089:021387

Access Statistics for this paper

More papers in Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE Contact information at EDIRC.
Bibliographic data for series maintained by Universidad De Los Andes-Cede ().