Collateral Heterogeneity and Monetary Policy Transmission: Evidence from Loans to SMEs and Large Firms / Cecilia R. Caglio, R. Matthew Darst, Ṣebnem Kalemli-Özcan.

Format:

Book

Author/Creator:

Caglio, Cecilia R.

Contributor:

National Bureau of Economic Research.

Darst, R. Matthew.

Kalemli-Özcan, Ṣebnem.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28685.

NBER working paper series no. w28685

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

Using matched firm-bank level administrative data for the U.S., we document new facts on heterogeneity in firms' financing conditions and quantify its effects on monetary policy transmission. Most private firms in the U.S. are small-medium-size-enterprises (SMEs), whose entire balance sheet debt comes from banks and is collateralized mostly with earnings and intangibles, i.e., their enterprise value. Highly leveraged SMEs' respond to monetary expansions more by increasing their credit demand. They borrow more at lower spreads by pledging earnings-based collateral, whose value increases with monetary expansions. Our results link the bank lending and firm investment channels of monetary policy and show that the impact of policy on investment is stronger in an environment with a large number of small firms, whose borrowing depends on earnings-based constraints.

Notes:

Print version record

April 2021.