Monetary Policy under Multiple Financing Constraints

Ander Pérez-Orive, Yannick Timmer and Alejandro Van der Ghote ()
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Ander Pérez-Orive: https://www.federalreserve.gov/econres/ander-perez-orive.htm

No 2026-021, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We revisit the credit channel of monetary policy when firms face multiple financing constraints. Our theory shows that the multiplicity of constraints dampens the transmission of expansionary policy to firm borrowing and investment notably but amplifies the transmission of policy tightening. This asymmetry arises because, when policy tightens (eases), the most (least) responsive constraint binds. Using U.S. firm-level data and exploiting a quasi-natural experiment, we find strong support for these predictions. Embedding the mechanism into a New Keynesian framework, we find that the drop in investment after contractionary shocks is twice as large as its increase following equally-sized expansionary shocks.

Keywords: Monetary policy transmission; Dynamic stochastic general equilibrium (DSGE) models; Business investment (search for similar items in EconPapers)
JEL-codes: D22 D25 E22 E44 E52 (search for similar items in EconPapers)
Pages: 59 p.
Date: 2026-04-01
New Economics Papers: this item is included in nep-dge and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:103075

DOI: 10.17016/FEDS.2026.021

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