Monetary Policy, Firm Heterogeneity, and the Distribution of Investment Rates

Wed, 01 Jan 2025 00:00:00 +0000

Research question and motivation. Investment is a sizable and the most volatile component of aggregate GDP, so understanding the investment channel of monetary policy matters for policymakers. Prior work has overwhelmingly studied the effect of monetary policy on the average investment rate. But an estimated average effect can reflect either a uniform rightward shift of the entire distribution (all firms invest a bit more) or a change in the shape of the distribution (a few firms invest a lot more). The paper asks: how does monetary policy reshape the cross-sectional distribution of firm investment rates, and what does that reveal about the frictions driving (heterogeneous) transmission?

Matthias Gnewuch | Macro Paper Warehouse

Monetary Policy, Firm Heterogeneity, and the Distribution of Investment Rates