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Corporate Finance and Monetary Policy

Guillaume Rocheteau, Randall Wright and Cathy Zhang ()

American Economic Review, 2018, vol. 108, issue 4-5, 1147-86

Abstract: We develop a general equilibrium model where entrepreneurs finance random investment opportunities using trade credit, bank-issued assets, or currency. They search for bank funding in over-the-counter markets where loan sizes, interest rates, and down payments are negotiated bilaterally. The theory generates pass-through from nominal interest rates to real lending rates depending on market microstructure, policy, and firm characteristics. Higher banks' bargaining power, for example, raises pass-through but weakens transmission to investment. Interest rate spreads arise from liquidity, regulatory, and intermediation premia and depend on policy described as money growth or open market operations.

JEL-codes: E43 E52 G21 G31 G32 L26 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/aer.20161048
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