Monetary Policy and Firm Heterogeneity: The Role of Leverage Since the Financial Crisis

47 Pages Posted: 21 Jun 2019

See all articles by Aeimit Lakdawala

Aeimit Lakdawala

Michigan State University - Department of Economics

Timothy Moreland

Michigan State University - Department of Economics

Date Written: June 16, 2019

Abstract

We study how leverage determines firm-level responses to monetary policy. Using both high-frequency financial market and quarterly investment data, we find that the role of leverage in monetary transmission changed around the financial crisis of 2007-09. Firms with high leverage were less responsive to monetary policy shocks in the pre-crisis period but have become more responsive since the crisis. The higher responsiveness is driven by firms whose leverage is more dependent on long-term debt, suggesting an outsize role for monetary policy affecting long-term funding conditions since the crisis. We also find suggestive evidence for transmission through changes in monetary policy uncertainty.

Keywords: monetary policy transmission, leverage, firm heterogeneity

JEL Classification: E52, E44, E43, E22

Suggested Citation

Lakdawala, Aeimit and Moreland, Timothy, Monetary Policy and Firm Heterogeneity: The Role of Leverage Since the Financial Crisis (June 16, 2019). Available at SSRN: https://ssrn.com/abstract=3405420 or http://dx.doi.org/10.2139/ssrn.3405420

Aeimit Lakdawala (Contact Author)

Michigan State University - Department of Economics ( email )

Agriculture Hall
East Lansing, MI 48824-1122
United States

HOME PAGE: http://aeimit.weebly.com

Timothy Moreland

Michigan State University - Department of Economics ( email )

East Lansing, MI 48824
United States

HOME PAGE: http://timothymoreland.com

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