Journal Article

Leverage, monetary policy, and firm investment

Abstract: In this paper, I investigate whether the effects of monetary policy on firm investment can be transmitted through leverage. I find that monetary contractions reduce the growth of investment more for highly leveraged firms than for less leveraged firms. The results suggest that the board credit channel for monetary policy exists, and that it can operate through leverage, as adverse monetary shocks aggravate real debt burdens and raise the effective costs of investment.

Keywords: Financial leverage; Monetary policy; Investments;

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Economic Review

Publication Date: 1999

Pages: 32-39

Order Number: 2