Heterogeneous responses to monetary policy: The role of floating rate loans

Eeva Kerola, Olli-Matti Laine and Aleksi Paavola

No 7/2025, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: This study examines the floating rate channel-a mechanism through which monetary policy affects firms' investment and credit demand based on their exposure to variable rate loans. Using a granular loan-level dataset from the euro area, we find that firms with variable rate loans significantly reduce their investment-related borrowing after monetary tightening, compared to firms with fixed rate loans. This effect is most pronounced among the smallest firms, consistent with the theoretical view that the floating rate channel is explained by financial constraints. Our results highlight the heterogeneity in firms' reactions to interest rate changes and underscore the importance of accounting for firm size and financial constraints in monetary policy analysis.

Keywords: monetary policy; floating rate channel; euro area (search for similar items in EconPapers)
JEL-codes: E52 G21 G30 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-acc, nep-cba, nep-eec, nep-inv and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:325483

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