Monetary Policy and Corporate Liquid Asset Demand
IMF Working Papers, November 1, 2001
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- Monetary Policy and Corporate Liquid Asset Demand
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Bibliographic details
- Authors: Woon Gyu Choi, Yungsan Kim
- Published: November 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451858877.001
Research question and hypothesis
- Proposes that monetary policy affects corporate liquidity demand directly through a separate channel called "the loan commitment channel."
- Hypothesis: Upon persistent monetary policy shocks, firms substitute between sources of funds for intertemporal liquidity management, taking advantage of loan commitments and sluggish movements in loan rates.
Methodology
- Empirical estimation of corporate liquidity demand using U.S. quarterly panel data.
- Controls for firm characteristics.
- Compares responses between S&P 500 firms and non-S&P firms.
Key findings
- When monetary policy is tightened:
- S&P 500 firms initially increase their liquid assets before reducing them.
- Non-S&P firms reduce their liquid assets more quickly.
- The results support the existence of a loan commitment channel through which monetary policy directly affects corporate liquidity demand.
Subject coverage and keywords
- Subjects: Asset and liability management, Bank credit, Currencies, Demand for money, Financial institutions, Liquidity, Loans, Money
- Keywords (as provided): assets ratio rise, Bank credit, cash reserves, commitment channel, Currencies, Demand for money, liquid asset demand, liquid asset holding, Liquidity, loan commitments, loan rate, Loans, market rate, monetary policy, opportunity cost, panel data, rate of return, WP