No. 1536 - The real effects of monetary policy transmission via the floating-rate channel
The paper examines the role of firms' floating-rate debt in the transmission of monetary policy in the euro area. To this end, it uses microdata to assess the impact of higher borrowing costs on corporate investment decisions in the main euro-area countries during the 2022-23 monetary tightening episode.
Firms' floating-rate indebtedness significantly affects the transmission of monetary policy. There is a negative relationship between the share of floating-rate debt and investment, which becomes stronger as borrowing costs increase. Estimates suggest that, during the period under review, the rise in policy rates reduced investment much more markedly for firms with almost entirely floating-rate debt than for firms relying exclusively on fixed-rate debt.
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