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Corporate Finance and Monetary Policy

Author

Listed:
  • Guillaume Rocheteau

    (LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas)

  • Randall Wright

    (University of Wisconsin-Madison)

  • Cathy Zhang

    (Purdue University [West Lafayette])

Abstract

We develop a general equilibrium model where entrepreneurs finance random investment opportunities using trade credit, bank-issued assets, or currency. They search for bank funding in over-the-counter markets where loan sizes, interest rates, and down payments are negotiated bilaterally. The theory generates pass-through from nominal interest rates to real lending rates depending on market microstructure, policy, and firm characteristics. Higher banks' bargaining power, for example, raises pass-through but weakens transmission to investment. Interest rate spreads arise from liquidity, regulatory, and intermediation premia and depend on policy described as money growth or open market operations.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Guillaume Rocheteau & Randall Wright & Cathy Zhang, 2018. "Corporate Finance and Monetary Policy," Post-Print hal-04134805, HAL.
    • Handle: RePEc:hal:journl:hal-04134805
    DOI: 10.1257/aer.20161048
    as

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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