The effect of firm cash holdings on monetary policy

Bernardino Adão, André C. Silva

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Firm cash holdings increased substantially from 1980 to 2017. We study the implications of the increase in firm cash holdings on monetary policy. We introduce a model that takes the distribution of firm cash holdings as an input. We find that the interest rate channel of the transmission of monetary policy becomes more powerful, as the impact of monetary policy over real interest rates increases. The time for the real interest rate to return to its initial value increases three times. Given the current large firm cash holdings, our results imply that monetary policy changes should be made gradually.

Original languageEnglish
Article number103508
JournalEuropean Economic Review
Volume128
DOIs
Publication statusPublished - Sep 2020

Keywords

  • Financial frictions
  • Firm cash holdings
  • Interest rates
  • Liquidity effect
  • Monetary policy

Fingerprint Dive into the research topics of 'The effect of firm cash holdings on monetary policy'. Together they form a unique fingerprint.

Cite this