How does monetary policy affect firms?

Saleem Bahaj, Angus Foulis, Gabor Pinter and Paolo Surico

Changes in interest rates affect different parts of the economy differently. In this post, building on a recent working paper, we consider how different types of firms respond to interest rate changes. We focus on firm level employment and ask which firms do the most hiring and firing when monetary policy adjusts. For instance, how important is the age of the firm, its balance sheet position or its size in determining the firm level response to interest rates? Furthermore, do these patterns of responses tell us something about how monetary policy affects the economy?

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