Enterprises' Financing Structure and Their Response to Monetary Policy Stimuli: An Analysis Based on the Deutsche Bundesbank's Corporate Balance Sheet Statistics

68 Pages Posted: 7 Jun 2016

Date Written: 1996

Abstract

The traditional monetary policy transmission mechanism is based on the fact that, in the wake of a restrictive monetary policy stance, the interest rate rises and that therefore interest-rate-related variables, such as corporate asset formation, dec1ine or increase less sharply than at the given interest rate. For some years now economists -especiaIly in the Anglo-Saxon countries -have been discussing the credit channel approach, which embraces the credit supply as weIl as the interest rate channeL A crucial factor in this context is that information between the lender and the borrower is asymmetric. This primarily affects small enterprises, whose creditworthiness is, as a rule, not as good as that oflarge firms and which are heavily reliant on bank credit. The credit channel theory states that, for small enterprises, a stricter monetary policy stance results in a higher cost of borrowed funds than for larger enterprises or even in credit rationing. The result is that this group of enterprises cuts its asset formation particularly sharply ...

Suggested Citation

Stoess, Elmar, Enterprises' Financing Structure and Their Response to Monetary Policy Stimuli: An Analysis Based on the Deutsche Bundesbank's Corporate Balance Sheet Statistics (1996). Bundesbank Series 1 Discussion Paper No. 1996,09E. Available at SSRN: https://ssrn.com/abstract=2785791

Elmar Stoess (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
P.O.B. 10 06 02
D-60431 Frankfurt/Main
Germany

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