The Effect of Firm Cash Holdings on Monetary Policy

Andre Silva (andre.silva@novasbe.pt) and Bernardino Adao
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Bernardino Adao: Banco de Portugal

No 528, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: Firm cash holdings increased substantially from 1980 to 2013. The overall distribution of firm cash holdings changed in the same period. We study the implications of these changes for monetary policy. We use Compustat data and a model with financial frictions that allows the calculation of the monetary policy effects according to the distribution of cash holdings. We find that the interest rate channel of the transmission of monetary policy has become more powerful, as the impact of monetary policy over real interest rates increased. With the observed changes in firm cash holdings, the real interest rate takes 3.4 months more to return to its initial value after a shock to the nominal interest rate.

Date: 2017
New Economics Papers: this item is included in nep-mon and nep-pay
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The effect of firm cash holdings on monetary policy (2020)
Working Paper: The Effect of Firm Cash Holdings on Monetary Policy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:528

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