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The Effect of Corporate Cash Accumulation on Monetary Policy Transmission: A Stock-flow Consistent Growth Model

Author

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  • Nitin Nair

Abstract

This paper causally shows that non-financial corporate liquidity dampens monetary policy transmission. While standard analyses of financial heterogeneity rely on exposure-based esti- mates, I additionally employ Granular Instrumental Variables (GIV) to overcome endogeneity concerns. GIVs exploit idiosyncratic shocks to the largest corporate cash holding firms to identify exogenous variation in the aggregate cash ratio. I then develop a stock-flow consistent growth model to identify the structural conditions under which corporate cash accumulation weakens transmission. These results have direct implications for the effectiveness of monetary policy and motivate the inclusion of corporate liquidity into mechanisms like the financial accelerator and investment functions.

Suggested Citation

  • Nitin Nair, 2026. "The Effect of Corporate Cash Accumulation on Monetary Policy Transmission: A Stock-flow Consistent Growth Model," Working Papers PKWP2610, Post Keynesian Economics Society (PKES).
    • Handle: RePEc:pke:wpaper:pkwp2610
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    Keywords

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    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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