Monetary Policy Surprises and Employment: Evidence from Matched Bank-Firm Loan Data on the Bank Lending-Channel

Abstract

This paper investigates the bank lending-channel of monetary policy (MP) surprises. To identify the effects of MP surprises on credit supply, I take the changes in interest rate derivatives immediately after each MP announcement and bring this high-frequency identification strategy to comprehensive and matched bank-firm data from Brazil. The results are robust and stronger than those obtained with Taylor residuals or the reference rate. Consistently with theory, heterogeneities across financial intermediaries, e.g. bank capital, are relevant. Firms connected to stronger banks mitigate about one third of the effects of contractionary MP on credit and about two thirds on employment.

Keywords: employment, monetary policy, surprises, loan-level, lending channel

JEL Classification: E52, E51, G21, G28