This complementary paper to Froot, Scharfstein, and Stein (1993) seeks to explore some of the corporate finance foundations of monetary economics. In particular, it investigates the impact of corporate risk management strategies on the monetary transmission mechanism. It employs a simple model of a financial accelerator (synonymously: a broad credit channel of monetary policy transmission) to argue that information asymmetries – which are at the heart of these models of the transmission mechanism – create incentives for corporate hedging programmes, that is, cash flow management. These policies, in turn, diminish the impact of monetary policy measures, which is reduced to the pure cost-of-capital effect.
Content: Article
Author: Ingo Fender
Source: Bank for International Settlements
Subjects: Economics, Finance
Author: Ingo Fender
Source: Bank for International Settlements
Subjects: Economics, Finance
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