Monetary Policy, Market Power, and SMEs
AEA Papers and Proceedings
vol. 113,
May 2023
(pp. 105-09)
Abstract
Monetary policy aims to affect corporate borrowing by influencing the marginal costs of firms, but its potency can be conditioned by the degree of market competition. We first identify conditions under which changes in marginal costs have different effects on credit constraints and output under different competitive environments, in a simple Cournot competition setting. We then exploit a monetary policy easing shock in the euro area to examine whether policy pass-through is conditioned by market structure. We show that small firms within less concentrated sectors experienced a larger reduction in credit constraints than similar firms in more concentrated sectors.Citation
Ferrando, Annalisa, Peter McAdam, Filippos Petroulakis, and Xavier Vives. 2023. "Monetary Policy, Market Power, and SMEs." AEA Papers and Proceedings, 113: 105-09. DOI: 10.1257/pandp.20231006Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L25 Firm Performance: Size, Diversification, and Scope