Granular shocks to corporate leverage and the macroeconomic transmission of monetary policy
Fédéric Holm-Hadulla and
Claire Thürwächter
No 2891, Working Paper Series from European Central Bank
Abstract:
We study how shocks to corporate leverage alter the macroeconomic transmission of monetary policy. We identify leverage shocks as idiosyncratic firm-level disturbances that are aggregated up to a size-weighted country-level average to generate a Granular Instrumental Variable (Gabaix and Koijen, forthcoming). Interacting this instrumental variable with high-frequency identified monetary policy shocks, we find that transmission to the price level strengthens in the presence of leverage shocks, while the real effects of monetary policy are unaffected. We show that this disconnect can be rationalized with an internal devaluationchannel. Economies experiencing an increase in leverage exhibit a stronger monetary policy-induced contraction in domestic demand. This, however, is counteracted by a weaker contraction in exports, facilitated by their improved price competitiveness. JEL Classification: C36, E22, E52
Keywords: corporate leverage; granular instrumental variable; micro-to-macro analysis; monetary policy transmission (search for similar items in EconPapers)
Date: 2024-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-mon
Note: 1624014
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2891~7eb017c33f.en.pdf (application/pdf)
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:ecb:ecbwps:20242891
Access Statistics for this paper
More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications (officialpublications@ecb.int).