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Firm-Level Uncertainty and the Transmission of Monetary Policy

Author

Listed:
  • Aeimit Lakdawala

    (Wake Forest University)

  • Timothy Moreland

    (UNC Greensboro)

Abstract

We show that firms that face higher uncertainty adjust their investment less in response to monetary policy shocks. We find corroborating evidence of this differential effect from firm-level stock returns on FOMC announcement days. Our results are consistent with a real options (or wait-and-see) channel whereby higher uncertainty dampens the response to changes in business conditions. Consistent with this mechanism, the dampening effect is stronger for firms that face higher reversibility.

Suggested Citation

  • Aeimit Lakdawala & Timothy Moreland, 2026. "Firm-Level Uncertainty and the Transmission of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 108(3), pages 807-816, May.
    • Handle: RePEc:tpr:restat:v:108:y:2026:i:3:p:807-816
    DOI: 10.1162/rest_a_01440
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