The impact of corporate risk management on monetary policy transmission: some empirical evidence

Quite an impressive amount of recent academic research focuses on the idea that financial factors may cause or reinforce real fluctuations. In these models, it is typically a monetary policy shock that serves to lower the value of an asset which is used to secure a firm’s borrowing, thereby generating broad credit channel effects of monetary transmission. We empirically investigate the impact of corporate risk … [ Read more ]

Corporate Hedging: The Impact of Financial Derivatives on the Broad Credit Channel of Monetary Policy

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 … [ Read more ]