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Monetary Policy Uncertainty

In: Public-Private Partnership and Policy Uncertainty

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  • Weijie Luo

    (Beijing International Studies University)

Abstract

This paper analyzes the impact of monetary policy uncertainty (MPU) on firm risk-taking. We introduce a model to explore the investment behavior of a firm when greater monetary policy uncertainty occurs. The model predicts that, to limit the risk exposure, the firm tends to lower its capital stock and henceforth reduce its risk-taking. Utilizing the firm-level data from China over the period 2000–2019, we show that MPU can significantly reduce the corporate risk-taking. Moreover, we find that firms with financing constraints become risk aversion in facing with MPU shocks. This paper sheds light on both theoretical basis and practical reference for firms to make better decisions on high-risk projects.

Suggested Citation

  • Weijie Luo, 2025. "Monetary Policy Uncertainty," Springer Books, in: Public-Private Partnership and Policy Uncertainty, chapter 0, pages 51-70, Springer.
    • Handle: RePEc:spr:sprchp:978-981-96-8074-0_4
    DOI: 10.1007/978-981-96-8074-0_4
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