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American Economic Journal: Macroeconomics: Vol. 3 No. 4 (October 2011)
AEJ: Macro Volume. 3, Issue 4 | 
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AEJ: Macro Forthcoming Articles
Monetary Policy and the Financing of Firms
Article Citation
De Fiore, Fiorella,
Pedro Teles, and
Oreste Tristani. 2011. "Monetary Policy and the Financing of Firms."
American Economic Journal: Macroeconomics,
3(4): 112-42.
DOI: 10.1257/mac.3.4.112
DOI: 10.1257/mac.3.4.112
Abstract
How should monetary policy respond to changes in financial conditions? We consider a simple model where firms are subject to shocks which may force them to default on their debt. Firms' assets and liabilities are nominal and predetermined. Monetary policy can
therefore affect the real value of funds used to finance production. In
this model, allowing for inflation volatility in response to aggregate
shocks can be optimal; the optimal response to adverse financial shocks is to lower interest rates and to engineer some inflation; and the Taylor rule may implement allocations that have opposite cyclical properties to the optimal ones. (JEL G32, E31, E43, E44, E52)
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Authors
De Fiore, Fiorella (European Central Bank)
Teles, Pedro (Bank of Portugal and Portuguese Catholic U)
Tristani, Oreste (European Central Bank)
Teles, Pedro (Bank of Portugal and Portuguese Catholic U)
Tristani, Oreste (European Central Bank)
JEL Classifications
E31: Price Level; Inflation; Deflation
E43: Interest Rates: Determination, Term Structure, and Effects
E44: Financial Markets and the Macroeconomy
E52: Monetary Policy
G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
E43: Interest Rates: Determination, Term Structure, and Effects
E44: Financial Markets and the Macroeconomy
E52: Monetary Policy
G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
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