Claire Thürwächter's thesis available for download

The thesis "Essays on Macroeconomics, Monetary Policy and Firm Heterogeneity" consists of four self-contained essays, which investigate the role of firm heterogeneity for monetary policy transmission and shed light on different aspects.

This work is motivated by the fact that firm responses to monetary policy are a central part of the overall transmission, so it is important to better understand its heterogeneous effects and underlying mechanisms. 

 

Firm Heterogeneity and Monetary Policy Transmission

This first chapter studies sources of heterogeneity in firm investment responses to monetary policy. Machine learning techniques, which are used on a comprehensive firm-level data set, identify firm age to be an important predictor for differences in investment sensitivities of firms to monetary policy. Specifically, investments become less responsive to monetary policy as firms get older. The mechanism that is proposed to rationalize this finding relies on the presence of investment frictions. In particular, fixed adjustment cost to the capital stock reduce the investment propensity of older firms, even when interest rates change. Hence, the predictions of the framework are in line with the empirical result. This finding has important implications for the aggregate transmission of monetary policy. For example, the secular decline in firm entry and resulting shift in the firm age distribution towards older firms implies a smaller aggregate investment response.

 

Monetary Policy Transmission in the Presence of Investment Frictions

This chapter further develops the theoretical framework, which has been proposed in Chapter one. 

 

Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy

In this chapter Claire investigates whether there are differences in monetary policy transmission depending on the composition of aggregate corporate debt structures. This question is analyzed in a euro are a country panel, which exhibits large heterogeneity in debt structures across countries while all countries are subject to the same monetary policy stance. A key finding is that, in response to short-term rate increases, there is a stronger rise in the cost of loans relative to corporate bonds for countries that have a higher share of bank-based debt. This is accompanied by a shift in the composition of debt towards bank loans, which leads to a larger overall tightening of credit. As a consequence, a lower bond share goes along with a stronger transmission to real activity measured by GDP. This finding implies that the secular rise in bond finance for firms may weaken the effectiveness of conventional monetary policy, in steering economic outcomes.

 

Corporate Leverage and Monetary Policy Transmission

The last chapter studies how changes in aggregate leverage – the ratio between debt and assets of the corporate sector – shape the transmission of monetary policy to the macroeconomy. Changes to aggregate leverage are identified through the novel Granular Instrumental Variable method (Gabaix and Koijen, 2020), which rests on estimated firm-level leverage shocks, that are aggregated to the country level. In the presence of unexpected shifts in corporate leverage, the transmission patterns exhibit little variation relative to the case where leverage does not change. The sign of the point estimates suggests that an increase in leverage enforces the decline in corporate investment and GDP. However, the magnitudes are small and the differences in point estimates are not statistically significant. Potential mechanisms behind this result are investigated in ongoing work.

Click here to read and download Claire's thesis

Claire will defend her thesis on 31 May 2023.

Click here for more information on the defense