The effect of firm cash holding on monetary policy

Adão, Bernardino; Silva, André C.

The effect of firm cash holding on monetary policy

License

Citation

Adão, B, Silva, A. The effect of firm cash holding on monetary policy. 2015. handle: http://hdl.handle.net/10230/27022

This citation was generated automatically.

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/nthe nominal interest rate.