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Corporate Finance and Monetary Policy

Author Info

Listed author(s):
  • Randall Wright

    (University of Wisconsin)

  • Cathy Zhang

    (Purdue University)

  • Guillaume Rocheteau

    (University of California, Irvine)

Abstract

This paper provides a theory of external and internal finance where entrepreneurs finance random investment opportunities with fiat money, bank liabilities, or trade credit. Loans are distributed in an over-the-counter credit market where the terms of the loan contract, including size, rate, and down payment, are negotiated in a decentralized fashion subject to pledgeability constraints. The model has implications for the cross-sectional distribution of corporate loan rates and loan sizes, interest rate pass-through, and the transmission of monetary policy (described either as money growth or open market operations) with or without liquidity requirements.

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File URL: https://economicdynamics.org/meetpapers/2016/paper_97.pdf
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Paper provided by Society for Economic Dynamics in its series 2016 Meeting Papers with number 97.

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Date of creation: 2016
Handle: RePEc:red:sed016:97
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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Cited by:

  1. Russell Wong & Cathy Zhang & Guillaume Rocheteau, 2017. "Lending Relationships, Banking Crises and Optimal Monetary Policies," 2017 Meeting Papers 152, Society for Economic Dynamics.
  2. Liu, Tao & Lu, Dong & Zhang, Ruifeng, 2017. "Currency choice in international trade: a new monetarist approach and firm-level evidence," MPRA Paper 79149, University Library of Munich, Germany.

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