Working Paper: NBER ID: w30023
Authors: Priit Jeenas; Ricardo Lagos
Abstract: We study the effects of monetary-policy-induced changes in Tobin's q on corporate investment and capital structure. We develop a theory of the mechanism, provide empirical evidence, evaluate the ability of the quantitative theory to match the evidence, and quantify the relevance for monetary transmission to aggregate investment.
Keywords: Monetary Policy; Tobin's q; Corporate Investment; Capital Structure
JEL Codes: D83; E22; E44; E52; G12; G31; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unexpected decrease in the nominal policy rate (E43) | increase in stock prices (G10) |
| increase in stock prices (G10) | raise Tobin's q (H87) |
| raise Tobin's q (H87) | increase in equity-financed investment (G31) |
| raise Tobin's q (H87) | higher investment rate at the two-quarter horizon (E22) |
| monetary policy shocks (E39) | changes in Tobin's q (E39) |