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©2024 International Monetary Fund
WP/24/245
IMF Working Paper
Western Hemisphere Department
The Role of Corporate Cash Holdings in the Transmission of Monetary Policy Tightening
Prepared by JaeBin Ahn, Euihyun Bae, and Jing Zhou1*
Authorized for distribution by Nigel Chalk
November 2024
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: The U.S. economy has been exceeding expectations amid one of the most aggressive monetary policy tightening cycles. This paper provides firm-level evidence showing that abundant cash holdings enable firms to benefit from higher interest rates, thereby reducing net interest payments and mitigate the adverse impact from interest rate hikes to firms’ investment and employment.
| JEL Classification Numbers: | E22, E32, E52, G31, G32 |
| Keywords: | Corporate cash; Monetary policy transmission; Interest income; Interest expense; Net interest payment |
| Author’s E-Mail Address: | jahn@imf.org; ebae@imf.org; jzhou@imf.org |
| JEL Classification Numbers: | E22, E32, E52, G31, G32 |
| Keywords: | Corporate cash; Monetary policy transmission; Interest income; Interest expense; Net interest payment |
| Author’s E-Mail Address: | jahn@imf.org; ebae@imf.org; jzhou@imf.org |
Title Page
The Role of Corporate Cash Holdings in the Transmission of Monetary Policy Tightening JaeBin Ahn, Euihyun Bae, and Jing Zhou2∗
November 4, 2024
Abstract
The U.S. economy has been exceeding expectations amid one of the most aggressive monetary policy tightening cycles. This paper provides firm-level evidence showing that abundant cash holdings enable firms to benefit from higher interest rates, thereby reducing net interest payments and mitigate the adverse impact from interest rate hikes to firms’ investment and employment.
The authors would like to thank Nigel Chalk and Mai Dao for helpful comments. While this note is based on the analysis featured in Staff Report for the 2024 Article IV Consultation with the U.S., the views expressed here are those of the author and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
International Monetary Fund. jahn@imf.org, ebae@imf.org, jzhou@imf.org. The authors would like to thank Nigel Chalk and Mai Chi Dao for helpful comments. While this note is based on the analysis featured in Staff Report for the 2024 Article IV Consultation with the U.S., the views expressed here are those of the author and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.