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Leverage, monetary policy, and firm investment

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  • Charles X. Hu

Abstract

In this paper, I investigate whether the effects of monetary policy on firm investment can be transmitted through leverage. I find that monetary contractions reduce the growth of investment more for highly leveraged firms than for less leveraged firms. The results suggest that the board credit channel for monetary policy exists, and that it can operate through leverage, as adverse monetary shocks aggravate real debt burdens and raise the effective costs of investment.

Suggested Citation

  • Charles X. Hu, 1999. "Leverage, monetary policy, and firm investment," Economic Review, Federal Reserve Bank of San Francisco, pages 32-39.
  • Handle: RePEc:fip:fedfer:y:1999:p:32-39:n:2
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    References listed on IDEAS

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    Cited by:

    1. José Alberto Fuinhas, 2003. "O canal do crédito, o sobreendividamento e as crises económicas," Working Papers de Gestão, Economia e Marketing (Management, Economics and Marketing Working Papers) 03/2003, Universidade da Beira Interior, Departamento de Gestão e Economia (Portugal).
    2. Mojon, Benoit & Smets, Frank & Vermeulen, Philip, 2002. "Investment and monetary policy in the euro area," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2111-2129, November.
    3. Ameer, Rashid, 2014. "Financial constraints and corporate investment in Asian countries," Journal of Asian Economics, Elsevier, vol. 33(C), pages 44-55.
    4. Rumen Dobrinsky & Nikolay Markov, 2003. "Policy Regime Change And Corporate Credit In Bulgaria: Asymmetric Supply And Demand Responses," William Davidson Institute Working Papers Series 2003-607, William Davidson Institute at the University of Michigan.

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