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Corporate Finance and Monetary Policy

Randall Wright, Cathy Zhang () and Guillaume Rocheteau
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Randall Wright: University of Wisconsin
Guillaume Rocheteau: University of California, Irvine

No 97, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: This paper provides a theory of external and internal finance where entrepreneurs finance random investment opportunities with fiat money, bank liabilities, or trade credit. Loans are distributed in an over-the-counter credit market where the terms of the loan contract, including size, rate, and down payment, are negotiated in a decentralized fashion subject to pledgeability constraints. The model has implications for the cross-sectional distribution of corporate loan rates and loan sizes, interest rate pass-through, and the transmission of monetary policy (described either as money growth or open market operations) with or without liquidity requirements.

New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Date: 2016
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