@article{b0a667d81c1e471abeedebd9bcc6b9f4,
title = "The effect of firm cash holdings on monetary policy",
abstract = "Firm cash holdings increased substantially from 1980 to 2017. We study the implications of the increase in firm cash holdings on monetary policy. We introduce a model that takes the distribution of firm cash holdings as an input. We find that the interest rate channel of the transmission of monetary policy becomes more powerful, as the impact of monetary policy over real interest rates increases. The time for the real interest rate to return to its initial value increases three times. Given the current large firm cash holdings, our results imply that monetary policy changes should be made gradually.",
keywords = "Financial frictions, Firm cash holdings, Interest rates, Liquidity effect, Monetary policy",
author = "Bernardino Ad{\~a}o and Andr{\'e} C. Silva",
note = "Funding Information: The views in this paper are those of the authors and do not necessarily reflect the views of the Banco de Portugal. We thank Heitor Almeida, Rui Albuquerque, Roc Armenter, Philippe Bacchetta, Thomas Bates, Paco Buera, Jeffrey Campbell, Isabel Correia, Igor Cunha, Carlos da Costa, Miguel Ferreira, Nir Jaimovich, Francesco Lippi, Ana Marques, Ed Nosal, Ricardo Nunes, Luigi Paciello, Bruno Sultanum, Shaofeng Xu, and participants at various seminars for valuable comments and discussions. We also thank the editor and the referees for valuable comments and suggestions. We acknowledge financial support from FCT. Silva thanks the hospitality of the Banco de Portugal, where he wrote part of this paper, and acknowledges financial support from Banco de Portugal. This work was funded by FCT-Funda{\c c}{\~a}o para a Ci{\^e}ncia e a Tecnologia (PTDC/IIM-ECO/4825/2012, UID/ECO/00124/2013, UID/ECO/00124/2019, UIDB/00124/2020 and Social Sciences DataLab Project PINFRA/22209/2016), POR Lisboa (LISBOA-01-0145-FEDER-007722 and Social Sciences DataLab Project PINFRA/22209/2016), and POR Norte (Social Sciences DataLab Project PINFRA/22209/2016). Funding Information: The views in this paper are those of the authors and do not necessarily reflect the views of the Banco de Portugal. We thank Heitor Almeida, Rui Albuquerque, Roc Armenter, Philippe Bacchetta, Thomas Bates, Paco Buera, Jeffrey Campbell, Isabel Correia, Igor Cunha, Carlos da Costa, Miguel Ferreira, Nir Jaimovich, Francesco Lippi, Ana Marques, Ed Nosal, Ricardo Nunes, Luigi Paciello, Bruno Sultanum, Shaofeng Xu, and participants at various seminars for valuable comments and discussions. We also thank the editor and the referees for valuable comments and suggestions. We acknowledge financial support from FCT. Silva thanks the hospitality of the Banco de Portugal, where he wrote part of this paper, and acknowledges financial support from Banco de Portugal. This work was funded by FCT-Funda??o para a Ci?ncia e a Tecnologia (PTDC/IIM-ECO/4825/2012, UID/ECO/00124/2013, UID/ECO/00124/2019, UIDB/00124/2020 and Social Sciences DataLab Project PINFRA/22209/2016), POR Lisboa (LISBOA-01-0145-FEDER-007722 and Social Sciences DataLab Project PINFRA/22209/2016), and POR Norte (Social Sciences DataLab Project PINFRA/22209/2016). Publisher Copyright: {\textcopyright} 2020",
year = "2020",
month = sep,
doi = "10.1016/j.euroecorev.2020.103508",
language = "English",
volume = "128",
journal = "European Economic Review",
issn = "0014-2921",
publisher = "Elsevier B.V.",
}
