Monetary Policy Shocks and Heterogeneous Finance Decisions: A Model of Hidden Effort Choice and Financial Intermediation

2003 ◽  
Vol 4 (3) ◽  
pp. 365-388
Author(s):  
Diemo Dietrich
Keyword(s):  
Monetary Policy ◽  
Liquidity Constraints ◽  
Bank Loans ◽  
Monetary Policy Shocks ◽  
External Finance ◽  
Monitoring Costs ◽  
Effort Choice ◽  
Policy Shocks ◽  
Internal Funds ◽  
Delegated Monitoring

Abstract The paper investigates how monetary policy shocks influence the composition of firms’ external finance given that firms are heterogeneous. Heterogeneity stems from differences in the availability of internal funds and in the monitoring costs associated with bank finance. These costs are determined by the intensity of the lending relationship. By using a delegated monitoring approach it is found that bank loans serve as a substitute for internal funds if the lending relationship is sufficiently close. Moreover, banks with strong credit ties to their customers are not only able to protect borrowers from liquidity constraints following a monetary tightening but are even able to extend their business lending.

scholarly journals Balance Sheet Channel of Monetary Policy: Evidence from Credit Spreads of Russian Firms

2021 ◽  
Vol 80 (4) ◽  
pp. 3-30
Author(s):  
Filipp Prokopev ◽  
Keyword(s):  
Monetary Policy ◽  
Balance Sheet ◽  
Credit Spreads ◽  
Monetary Shocks ◽  
Monetary Policy Shocks ◽  
Net Worth ◽  
External Finance ◽  
Balance Sheet Channel ◽  
Bond Issuers ◽  
Policy Shocks

In this paper, I analyse the relationship between the credit spreads of Russian bond issuers and monetary policy shocks. According to the theory of demand-side financial imperfections, in the presence of financial frictions, the higher the net worth of a firm, the lower its external finance premium. The theory of the balance sheet channel of monetary policy suggests that monetary shocks may affect the net worth of a firm through debt outflows. Together, these ideas predict that the external finance premium of more indebted companies is more sensitive to monetary policy shocks. However, my empirical findings from the credit spreads of Russian companies do not support this theory.

Is bigger more effective? shock size and the efficacy of monetary policy

2021 ◽  
pp. 1-10
Author(s):  
Toyoichiro Shirota
Keyword(s):  
Monetary Policy ◽  
Projection Method ◽  
Monetary Policy Shocks ◽  
Information Effect ◽  
Local Projection ◽  
Policy Effects ◽  
Potential Source ◽  
The Us ◽  
Policy Shocks ◽  
Us Monetary Policy

Abstract This study empirically examines whether shock size matters for the US monetary policy effects. Using a nonlinear local projection method, I find that large monetary policy shocks are less powerful than smaller monetary policy shocks, with the information effect being the potential source of the observed asymmetry in monetary policy efficacy.

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