Corporate Finance and Monetary Policy

2018 ◽  
Vol 108 (4-5) ◽  
pp. 1147-1186 ◽  
Author(s):  
Guillaume Rocheteau ◽  
Randall Wright ◽  
Cathy Zhang
Keyword(s):  
Interest Rates ◽  
Bargaining Power ◽  
Trade Credit ◽  
Open Market ◽  
Firm Characteristics ◽  
Over The Counter ◽  
Nominal Interest Rates ◽  
Investment Opportunities ◽  
Bank Funding ◽  
Pass Through

We develop a general equilibrium model where entrepreneurs finance random investment opportunities using trade credit, bank-issued assets, or currency. They search for bank funding in over-the-counter markets where loan sizes, interest rates, and down payments are negotiated bilaterally. The theory generates pass-through from nominal interest rates to real lending rates depending on market microstructure, policy, and firm characteristics. Higher banks' bargaining power, for example, raises pass-through but weakens transmission to investment. Interest rate spreads arise from liquidity, regulatory, and intermediation premia and depend on policy described as money growth or open market operations. (JEL E43, E52, G21, G31, G32, L26)

scholarly journals Trade Credit and Product Pricing: The Role of Implicit Interest Rates

2020 ◽  
Author(s):  
Niklas Amberg ◽  
Tor Jacobson ◽  
Erik von Schedvin
Keyword(s):  
Interest Rates ◽  
Trade Credit ◽  
Opportunity Costs ◽  
Price Setting ◽  
Firm Characteristics ◽  
Data Set ◽  
Transaction Prices ◽  
Financial Conditions ◽  
Product Pricing

Abstract We empirically investigate the proposition that firms charge premia on cash prices in transactions involving trade credit. Using a comprehensive panel data set on product-level transaction prices and firm characteristics, we relate trade credit issuance to price setting. In a recession characterized by tightened credit conditions, we find that prices increase significantly more on products sold by firms issuing more trade credit, in response to higher opportunity costs of liquidity and counterparty risks. Our results thus demonstrate the importance of trade credit for price setting and show that trade credit issuance induces a channel through which financial conditions affect prices.

On Alternatives to Aggressive Demand Policies to Revitalize the Japanese Economy

2003 ◽  
Vol 2 (3) ◽  
pp. 87-126 ◽  
Author(s):  
Kiyohiko G. Nishimura ◽  
Makoto Saito
Keyword(s):  
Interest Rates ◽  
Aggregate Demand ◽  
Private Investment ◽  
Japanese Economy ◽  
Social Optimum ◽  
Nominal Interest Rates ◽  
Economic Stagnation ◽  
Investment Opportunities ◽  
Fundamental Cause ◽  
Zero Bound

This paper claims that a scarcity of profitable private investment opportunities starting in the early 1990s or even earlier is a fundamental cause of Japan's prolonged economic stagnation during the 1990s and early 2000s. It presents evidence that the economy has been largely at a private equilibrium (i.e., at its optimum for the physical and human capital Japan has inherited from the past), rather than in a disequilibrium constrained by the binding zero bound of nominal interest rates and/or widespread liquidity constraints. Consequently, aggressive aggregate demand policies, particularly zero nominal interest rates coupled with aggressive quantity easing, are ineffective means for escaping from Japan's current economic stagnation and deflation. Reflation policies based on money financing alone are unlikely to solve the problem because of their strong distributional side effects and limited effects on employment and output. The paper concludes that although exchange rate policies are more promising than other aggregate demand policies, their political feasibility is questionable, and aggregate demand policies are unlikely to be effective without new structural initiatives to increase investment. Although the Japanese economy is at a private equilibrium, it is far from its social optimum. Socially desirable investment opportunities have not been exploited fully in Japan, mainly because most of them are unprofitable for the private sector. Socially oriented investment trusts are proposed as one way to encourage such investment.

scholarly journals The Dynamics of Bank Spreads and Financial Structure

2014 ◽  
Vol 04 (04) ◽  
pp. 1450014 ◽  
Author(s):  
Reint Gropp ◽  
Christoffer Kok ◽  
Jung-Duk Lichtenberger
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Banking Sector ◽  
Interest Rate Derivatives ◽  
Developed Markets ◽  
Speed Up ◽  
Pass Through ◽  
Bank Spreads ◽  
Effectiveness Of Monetary Policy

This paper investigates the effect of within banking sector competition and competition from financial markets on the dynamics of the transmission from monetary policy rates to retail bank interest rates in the euro area. We use a new dataset that permits analysis for disaggregated bank products. Using a difference-in-difference approach, we test whether development of financial markets and financial innovation speed up the pass through. We find that more developed markets for equity and corporate bonds result in a faster pass-through for those retail bank products directly competing with these markets. More developed markets for securitized assets and for interest rate derivatives also speed up the transmission. Further, we find relatively strong effects of competition within the banking sector across two different measures of competition. Overall, the evidence supports the idea that developed financial markets and competitive banking systems increase the effectiveness of monetary policy.

THE EFFECT OF FISCAL POLICY ON THE SHORT-RUN RELATION BETWEEN NOMINAL INTEREST RATES AND INFLATION

1987 ◽  
Vol 25 (1) ◽  
pp. 27-42 ◽  
Author(s):  
VICTOR A. CANTO ◽  
GERALD NICKELSBURG ◽  
PAUL RIZOS
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Nominal Interest Rates ◽  
Short Run

Interest Rates and Foreign Capital in Egypt Under British Occupation

1983 ◽  
Vol 43 (4) ◽  
pp. 867-884 ◽  
Author(s):  
Bent Hansen
Keyword(s):  
Interest Rates ◽  
Third World ◽  
Foreign Capital ◽  
Financial Capital ◽  
Archival Studies ◽  
Sharp Decline ◽  
Agricultural Prices ◽  
British Occupation ◽  
Nominal Interest Rates ◽  
Interest Differentials

My archival studies in Egyptian banks reveal that nominal interest rates charged by foreign financial capital in Egypt fell strongly as compared with European rates throughout the period 1882–1914. Interest differentials declined by 2 to 2 ½ percent. This is explained by the increasing confidence of European investors with British occupation and policies. To explain the large inflow of financial capital after 1900 a sharp decline in real interest rates, related to the upsurge of agricultural prices, is posited. The case offers interesting parallels to present-day problems of excessive indebtedness in Third World countries.

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