Board of Governors of the Federal Reserve System
04/01/2026 | Press release | Distributed by Public on 04/01/2026 12:51
Monetary Policy under Multiple Financing Constraints
April 2026
Monetary Policy under Multiple Financing Constraints
Ander Perez-Orive, Yannick Timmer, Alejandro van der Ghote
Abstract:
We revisit the credit channel of monetary policy when firms face multiple financing constraints. Our theory shows that the multiplicity of constraints dampens the transmission of expansionary policy to firm borrowing and investment notably but amplifies the transmission of policy tightening. This asymmetry arises because, when policy tightens (eases), the most (least) responsive constraint binds. Using U.S. firm-level data and exploiting a quasi-natural experiment, we find strong support for these predictions. Embedding the mechanism into a New Keynesian framework, we find that the drop in investment after contractionary shocks is twice as large as its increase following equally-sized expansionary shocks.
Keywords: Monetary policy, asymmetry, firm heterogeneity, investment, financial frictions
DOI: https://doi.org/10.17016/FEDS.2026.021
PDF: Full Paper
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