Firm Heterogeneity and Monetary Policy Transmission

This paper studies sources of heterogeneity in the response of firm investment to monetary policy. I estimate firm-level semi-elasticities of investment to plausibly exogenous changes in interest rates for a comprehensive firm-level dataset for ten euro area countries. I then employ a machine learning algorithm to detect which observables predict differences in the micro elasticities and find firm age to be the most important variable. Impulse responses along age reveal that investments of young firms are significantly more sensitive to monetary policy than investments of older firms. To rationalize this finding, I develop a model featuring capital adjustment costs. Older firms are less responsive to interest rate shocks, in line with the empirical findings, because they are closer to their optimal scale, which makes them less likely to pay the fixed adjustment cost and change the capital stock. One key implication of this finding is that a shift in the firm distribution towards older firms implies a lower aggregate response to monetary policy. 

Monetary Policy Transmission in the Presence of Investment Frictions

This paper examines the role of investment frictions for monetary policy transmission. The theoretical framework features fixed and quadratic adjustment costs, which shape the capital choice of firms along age. As firms get older, the fixed cost makes changes to the capital stock less worthwhile. The quadratic cost moderates the size of capital adjustments and investments get smaller as firms approach the optimal scale. When the interest rate changes, the fixed cost leads to heterogeneous investment responses along age. Young firms exhibit a large sensitivity to changes in the interest rate and their capital stock falls as the interest rate increases. The capital stock of older firms, however, does not adjust.

Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy

We study how differences in the aggregate structure of corporate debt affect the transmission of monetary policy in a panel of euro area countries. We find that standard policy tightening shocks raise the cost of loans relative to corporate bonds. In economies with a high share of bond finance, the resultant rise in the overall cost of credit is less pronounced as a smaller portion of corporate debt is remunerated at the loan rate and firms further expand their reliance on bonds. In economies with a low share of bond finance, the rise in the cost of credit is reinforced by a shift in the composition of debt towards bank loans. As a consequence, a higher bond share goes along with a weaker transmission of short-term policy rate shocks to real activity. By contrast, the real effects of monetary policy shocks to longer-term yields strengthen with the share of bond finance in the economy.

Corporate Leverage and Monetary Policy Transmission

This paper studies how changes in corporate leverage affect the transmission of monetary policy to the aggregate economy. We identify unexpected changes in leverage through the Granular Instrumental Variable (GIV) approach (Gabaix and Koijen, 2020). We use this macro-level instrument in a panel of euro area countries to estimate potential differences in transmission when leverage changes. We find that the effectiveness of monetary policy is unchanged when there are unexpected shifts in aggregate leverage.