IDEAS home Printed from https://ideas.repec.org/p/ime/imedps/25-e-16.html

Sticky Discount Rates

Author

Listed:
  • Masao Fukui

    (Boston University (E-mail: mfukui@bu.edu))

  • Niels Joachim Gormsen

    (University of Chicago, Booth School of Business (E-mail: niels.gormsen@chicagobooth.edu))

  • Kilian Huber

    (University of Chicago, Booth School of Business (E-mail: kilianhuber@uchicago.edu))

Abstract

We show that firms' nominal required returns (i.e., discount rates) are sticky with respect to expected inflation. Sticky discount rates generate distinct theoretical predictions that are broadly consistent with stylized empirical patterns: increases in expected inflation directly raise real investment; demand shocks generate investment-consumption comovement; and the sensitivity of investment to interest rates is low. Sticky discount rates imply monetary non- neutrality, even when all other prices are flexible, because of a direct link from expected inflation to investment. In the New Keynesian optimal monetary policy problem, the central bank steers long-run inflation expectations, even in response to temporary shocks.

Suggested Citation

  • Masao Fukui & Niels Joachim Gormsen & Kilian Huber, 2025. "Sticky Discount Rates," IMES Discussion Paper Series 25-E-16, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:25-e-16
    as

    Download full text from publisher

    File URL: https://www.imes.boj.or.jp/research/papers/english/25-E-16.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. John R. Graham, 2022. "Presidential Address: Corporate Finance and Reality," Journal of Finance, American Finance Association, vol. 77(4), pages 1975-2049, August.
    2. Benigno, Pierpaolo & Woodford, Michael, 2012. "Linear-quadratic approximation of optimal policy problems," Journal of Economic Theory, Elsevier, vol. 147(1), pages 1-42.
    3. Auclert, Adrien & Rognlie, Matthew & Souchier, Martin & Straub, Ludwig, 2021. "Exchange Rates and Monetary Policy with Heterogeneous Agents: Sizing up the Real Income Channel," CEPR Discussion Papers 16198, C.E.P.R. Discussion Papers.
    4. Iván Werning, 2015. "Incomplete Markets and Aggregate Demand," NBER Working Papers 21448, National Bureau of Economic Research, Inc.
    5. Lawrence H. Summers, 1987. "Investment Incentives and the Discounting of Depreciation Allowances," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 295-304, National Bureau of Economic Research, Inc.
    6. John Graham, 2022. "Presidential Address: Corporate Finance and Reality," NBER Working Papers 29841, National Bureau of Economic Research, Inc.
    7. Adrien Auclert & Ludwig Straub & Matthew Rognlie, 2019. "Micro Jumps, Macro Humps: monetary policy and business cycles in an estimated HANK model," 2019 Meeting Papers 1449, Society for Economic Dynamics.
    8. Bilbiie, Florin O. & Känzig, Diego R. & Surico, Paolo, 2022. "Capital and income inequality: An aggregate-demand complementarity," Journal of Monetary Economics, Elsevier, vol. 126(C), pages 154-169.
    9. Jagannathan, Ravi & Matsa, David A. & Meier, Iwan & Tarhan, Vefa, 2016. "Why do firms use high discount rates?," Journal of Financial Economics, Elsevier, vol. 120(3), pages 445-463.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Ichiro Fukunaga & Yoshihiko Hogen & Yoichi Ueno, 2024. "Japan's Economy and Prices over the Past 25 Years: Past Discussions and Recent Issues," Bank of Japan Working Paper Series 24-E-14, Bank of Japan.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kolev, Atanas & Randall, Timothy, 2024. "The effect of uncertainty on investment: Evidence from EU survey data," EIB Working Papers 2024/02, European Investment Bank (EIB).
    2. Zheng Gong, 2025. "When Does Household Heterogeneity Matter for Aggregate Fluctuations?," CRC TR 224 Discussion Paper Series crctr224_2025_624v2, University of Bonn and University of Mannheim, Germany, revised Sep 2025.
    3. Sokolov, Mikhail V., 2024. "NPV, IRR, PI, PP, and DPP: A unified view," Journal of Mathematical Economics, Elsevier, vol. 114(C).
    4. Cantore, Cristiano & Freund, Lukas B., 2021. "Workers, capitalists, and the government: fiscal policy and income (re)distribution," Journal of Monetary Economics, Elsevier, vol. 119(C), pages 58-74.
    5. Felipe Alves & Greg Kaplan & Benjamin Moll & Giovanni L. Violante, 2020. "A Further Look at the Propagation of Monetary Policy Shocks in HANK," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(S2), pages 521-559, December.
    6. repec:bon:boncrc:crctr224_2025_624 is not listed on IDEAS
    7. Lea Best & Benjamin Born & Manuel Menkhoff, 2025. "The Impact of Interest: Firms' Investment Sensitivity to Interest Rates," CESifo Working Paper Series 12167, CESifo.
    8. Yujie Yang & Chenxing Zhang & Wenwen Hou, 2023. "Two-Country HANK and trade friction," PLOS ONE, Public Library of Science, vol. 18(7), pages 1-37, July.
    9. Paul F. Hark & Christoph Schneider, 2025. "Does the CAPM drive misvaluations in M&As?," Journal of Business Economics, Springer, vol. 95(2), pages 427-463, April.
    10. Dobrew, Michael & Gerke, Rafael & Giesen, Sebastian & Röttger, Joost, 2025. "Make-up strategies with incomplete markets and bounded rationality," European Economic Review, Elsevier, vol. 173(C).
    11. Ben Moll, 2020. "The Research Agenda: Ben Moll on the Rich Interactions between Inequality and the Macroeconomy," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 21(2), November.
    12. Oskolkov, Aleksei, 2023. "Exchange rate policy and heterogeneity in small open economies," Journal of International Economics, Elsevier, vol. 142(C).
    13. Giacomo Mangiante & Pascal Meichtry, 2025. "On the Distributional Effects of Conventional Monetary Policy and Forward Guidance," Working papers 996, Banque de France.
    14. Lu Qiao & Emmanuel Adegbite & Tam Huy Nguyen, 2024. "CFO overconfidence and conditional accounting conservatism," Review of Quantitative Finance and Accounting, Springer, vol. 62(1), pages 1-37, January.
    15. Vivien Lefebvre, 2023. "Turning 30 and myopic? Temporal orientation and the firm lifecycle," Post-Print hal-04563638, HAL.
    16. Stéphane Dupraz, 2023. "The Dynamic IS Curve when there is both Investment and Savings," Working papers 905, Banque de France.
    17. Bilbiie, Florin O. & Känzig, Diego R. & Surico, Paolo, 2022. "Capital and income inequality: An aggregate-demand complementarity," Journal of Monetary Economics, Elsevier, vol. 126(C), pages 154-169.
    18. Haochen Guo & Petr Polak, 2024. "Finance centralization—research on enterprise intelligence," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 11(1), pages 1-9, December.
    19. repec:osf:socarx:2zy5h_v2 is not listed on IDEAS
    20. Si, Yi & Yu, Minfeng & Zhang, Lei & Zhou, Qing (Clara), 2025. "Board reforms and firm employment: Worldwide evidence," Journal of Banking & Finance, Elsevier, vol. 171(C).
    21. Alisdair McKay & Johannes F. Wieland, 2021. "Lumpy Durable Consumption Demand and the Limited Ammunition of Monetary Policy," Econometrica, Econometric Society, vol. 89(6), pages 2717-2749, November.
    22. Martin Bodenstein & Junzhu Zhao, 2019. "On Targeting Frameworks And Optimal Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(8), pages 2077-2113, December.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ime:imedps:25-e-16. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kinken (email available below). General contact details of provider: https://edirc.repec.org/data/imegvjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.