Asymmetric Effects of Monetary Policy on Firms

Abstract

This paper documents firm-level evidence on the asymmetric effects of monetary policy in the United States. Focusing on the 1980q3–2019q4 period, I find that monetary tightenings show larger effects on firms' employment and sales than monetary easings. In comparison, investment rate does not generate significant asymmetry in response to sign-dependent monetary policy shocks. I interpret these findings in the context of downward nominal wage rigidity and investment irreversibility channels. Furthermore, I exploit cross-sectional variation and show that employment of small, nondividend payer, low credit rating, and young firms displays larger contractions in response to a monetary tightening.