EconPapers    
Economics at your fingertips  
 

Firm Balance Sheet Liquidity, Monetary Policy Shocks, and Investment Dynamics

Priit Jeenas

No 1409, Working Papers from Barcelona School of Economics

Abstract: I study the role of firms' balance sheet liquidity in the transmission of monetary policy to investment. In response to monetary contractions, U.S. firms with fewer liquid asset holdings reduce investment relatively more. This can be explained by their higher likelihood to issue debt and the implied exposure to borrowing cost fluctuations. I rationalize these results using a heterogeneous firm macroeconomic model with financial constraints, debt issuance costs, and differential returns on cash and borrowing. Compared to a framework which ignores liquidity considerations, monetary transmission to aggregate investment is slightly dampened and depends on liquid asset portfolios beyond net worth.

Keywords: monetary policy; investment; financial frictions; firm heterogeneity (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fdg, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://bse.eu/sites/default/files/working_paper_pdfs/1409.pdf (application/pdf)

Related works:
Working Paper: Firm balance sheet liquidity, monetary policy shocks, and investment dynamics (2023) Downloads
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:bge:wpaper:1409

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().

 
Page updated 2024-04-18
Handle: RePEc:bge:wpaper:1409