Federal Reserve researchers have released new findings indicating that firms’ borrowing and investment responses to monetary policy differ depending on whether policy is tightened or eased. In a paper presented at the Finance and Economics Discussion Series, the authors argue that when firms face multiple financing constraints, expansionary policy has a muted effect on borrowing and investment because the most responsive constraint limits borrowing. Conversely, tightening policy is amplified, as the least responsive constraint becomes binding. Using U.S. firm‑level data and a quasi‑natural experiment, the study finds strong evidence for these asymmetric effects. When integrated into a New Keynesian model, the research shows that a contractionary shock cuts investment by twice the amount that an equivalent expansionary shock raises it.
Made by AI. If you spot anything of concern write us at contact@cybach.com. We’ll promptly correct irregularities.