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The Transmission of US Monetary Policy Shocks The Role of Investment & Financial Heterogeneity

Author

Listed:
  • Santiago Camara

    (Northwestern University/Red-NIE)

  • Sebastian Ramirez Venegas

    (Comisión para el Mercado Financiero)

Abstract

This paper studies the transmission of US monetary policy shocks into Emerging Markets emphasizing the role of investment and financial heterogeneity. First, we use a panel SVAR model to show that a US interest tightening leads to a persistent recession in Emerging Markets driven by a sharp reduction in aggregate investment. Second, we study the role of firms’ financial heterogeneity in the transmission of US interest rate shocks by exploiting detailed balance sheet dataset from Chile. We find that more indebted firms experience greater drops in investment in response to a US tightening shock than less indebted firms. This result is at odds with recent evidence from US firms, even when using the same identification strategy and econometric methods. Third, we rationalize this finding using a stylized model of heterogeneous firms subject to a tightening leverage constraint. Finally, we present evidence in support of this hypothesis as well as robustness checks to our main results. Overall, our results suggests that the transmission channel of US monetary policy shocks within and outside the US differ, a result novel to the literature.

Suggested Citation

  • Santiago Camara & Sebastian Ramirez Venegas, 2023. "The Transmission of US Monetary Policy Shocks The Role of Investment & Financial Heterogeneity," Working Papers 230, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:230
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/230.pdf
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    References listed on IDEAS

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    1. Martin Eichenbaum & Charles L. Evans, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 975-1009.
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    Cited by:

    1. Santiago Camara, 2023. "International Spillovers of ECB Interest Rates Monetary Policy & Information Effects," Working Papers 250, Red Nacional de Investigadores en Economía (RedNIE).

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    More about this item

    Keywords

    Firm dynamics; Firm heterogeneity; Financial frictions; balance sheet effects; US interest rates; Emerging Markets;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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