Financial Heterogeneity and the Investment Channel of Monetary Policy

Ottonello, Pablo; Winberry, Thomas

doi:10.3386/w24221

Cited by 68 publications

(89 citation statements)

References 27 publications

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“…24 This approach does not, therefore, require that the high frequency surprises are the true monetary policy shocks (as in Ottonello and Winberry (2018) and Jeenas (2018)).…”

Section: Data On Fed Funds Futures and On Short-sterlingmentioning

confidence: 99%

“…This is consistent with the evidence in Opler et al (1999), Han and Qiu (2007) and Bates et al (2009), who document that firms with lower debt and higher cash holdings are more likely financially constrained. 36 As noted by Ottonello and Winberry (2018), the evidence based on grouping firms by leverage is not robust and one may find that the investment of lower or higher levered companies responds most depending on whether the firms grouping is based on leverage in the last period (as in Ottonello and Winberry (2018)) or is based on an average of leverage over the last few periods (as in Jeenas (2018)). While there is no substantive reason to prefer one definition to the other, the lack of robustness of the findings by leverage groups is consistent with the view that leverage is an endogenous variable and its distribution is not rank-invariant to the business cycle or the monetary policy shocks.…”

Section: Cooley and Quadrinimentioning

confidence: 99%

“…A large empirical literature on investment has proposed various proxies for financial constraints, including cash flows (Fazzari et al (1988), Oliner and Rudebusch (1992)), size (Gertler and Gilchrist (1994), Crouzet and Mehrotra (2017)), paying dividends (Fazzari et al (1988), Farre-Mensa and Ljungqvist (2016)), bank debt (Ippolito and Ozdagli (2018)), leverage (Ottonello and Winberry (2018)) and liquidity (Jeenas (2018)). 5 Relative to these proxies, we find that age has stronger predictive power for the effects on investment.…”

Section: Introductionmentioning

confidence: 99%

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Monetary Policy, Corporate Finance and Investment

et al. 2019

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We provide new evidence on how monetary policy affects investment and fi rm fi nance in the United States and the United Kingdom. Younger fi rms paying no dividends exhibit the largest and most signifcant change in capital expenditure -even after conditioning on size, asset growth, Tobin's Q, leverage or liquidity -and drive the response of aggregate investment.Older companies, in contrast, hardly react at all. After a monetary policy tightening, net worth falls considerably for all fi rms but borrowing declines only for younger non-dividend payers, as their external fi nance is mostly exposed to asset value fl uctuations. Conversely, cash-fl ows change less markedly and more homogeneously across groups. Our fi ndings highlight the role of fi rm fi nance and fi nancial frictions in amplifying the effects of monetary policy on investment.Keywords: monetary policy, fi nancial frictions, fi rm fi nance, investment.JEL classifi cation: E22, E32, E52. ResumenEn este trabajo se presenta nueva evidencia acerca del efecto que la política monetaria tiene sobre la inversión y la fi nanciación de las empresas en Estados Unidos y en el Reino Unido.Las empresas más jóvenes y que no pagan dividendos son las que muestran la mayor, -y estadísticamente signifi cativa-, reacción en términos de inversión en capital fi jo, mientras que las empresas relativamente antiguas casi no presentan reacción alguna. Esto es así aun controlando por características tradicionales en esta literatura, como son el tamaño, el crecimiento en activos, la valuación, el apalancamiento y liquidez. La reacción de empresas jóvenes que no pagan dividendos explica el movimiento de la inversión agregada. Después de una contracción en la política monetaria, se observa una reacción de la valuación de todas las empresas, mientras que la deuda responde solo para aquellas empresas jóvenes que no pagan dividendos. Esto se debe a que estas últimas son las más expuestas a cambios en el valor del colateral a la hora de endeudarse. Por otro lado, se observa también una reacción en los fl ujos de caja, aunque dicha reacción es relativamente pequeña y homogénea entre empresas. Estos resultados resaltan la importancia de la estructura fi nanciera, así como de las fricciones en la fi nanciación externa de las empresas, en la amplifi cación de los efectos de la política monetaria sobre la inversión empresarial.Palabras clave: política monetaria, fricciones fi nancieras, fi nanciación empresarial, inversión.

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“…24 This approach does not, therefore, require that the high frequency surprises are the true monetary policy shocks (as in Ottonello and Winberry (2018) and Jeenas (2018)).…”

Section: Data On Fed Funds Futures and On Short-sterlingmentioning

confidence: 99%

Section: Cooley and Quadrinimentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Monetary Policy, Corporate Finance and Investment

et al. 2019

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“…As described above, trade uncertainty is T P U i,t , that is, the number of mentions of trade uncertainty words divided by the total number of words in the firms' earnings calls. Our investment measure is log k i,t+h − log k i,t−1 , where k i,t is the capital stock of firm i at the start of period t, following Ottonello and Winberry (2018) and Clementi and Palazzo (2019). α i and α s,t denote firm and sector-by-quarter fixed effects, respectively.…”

Section: Firm-level Responses To Trade Policy Uncertaintymentioning

confidence: 99%

Does Trade Policy Uncertainty Affect Global Economic Activity?

et al. 2019

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We study the effects of unexpected changes in trade policy uncertainty (T P U ) on the U.S. economy. We construct three measures of T P U based on newspaper coverage, firms' earnings conference calls, and aggregate data on tariff rates. We document that increases in T P U reduce investment and activity using both firm-level and aggregate macroeconomic data. We interpret the empirical results through the lens of a two-country general equilibrium model with nominal rigidities and firms' export participation decisions. In the model as in the data, news and increased uncertainty about higher future tariffs reduce investment and activity.

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“…On the firm side, a venerable literature (Bernanke and Gertler, 1995;Kashyap, Lamont, and Stein 1994;and Kashyap and Stein 1995) argued that credit constrained firms are more responsive to monetary policy. More recently, Ottonello and Winberry (2017) focus on firm (credit) heterogeneity to investigate asymmetry in the investment channel of monetary policy. This is just an example of other extensions permitted in our framework, some of which we examine in more detail.…”

Section: Introductionmentioning

confidence: 99%