Firm Financial Conditions and the Transmission of Monetary Policy

Thiago Revil T. Ferreira, Daniel Ostry and John Rogers
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Thiago Revil T. Ferreira: https://www.federalreserve.gov/econres/thiago-r-t-ferreira.htm

No 2023-037, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study how the transmission of monetary policy to firms' investment and credit spreads depends on their financial conditions, finding a major role for their excess bond premia (EBPs), the component of credit spreads in excess of default risk. While monetary policy easing shocks compress credit spreads more for firms with higher ex-ante EBPs, it is lower-EBP firms that invest more. We rationalize these findings using a model with financial frictions in which lower-EBP firms have flatter marginal product of capital curves. We also show empirically that the cross-sectional distribution of firm EBPs determines the aggregate effectiveness of monetary policy.

Keywords: monetary policy; investment; credit spreads; excess bond premium; firm heterogeneity (search for similar items in EconPapers)
JEL-codes: E22 E44 E50 (search for similar items in EconPapers)
Pages: 106 pages
Date: 2023-05-31
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Firm financial conditions and the transmission of monetary policy (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:96639

DOI: 10.17016/FEDS.2023.037

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