WORKing PAPERS
JOB MARKET PAPER
Monetary Policy Transmission and Firm-Level Volatility: Uncertainty Versus Risks
Ruslana Datsenko
I study the role of firm-level volatility and default risk in the transmission of monetary policy to investments in fixed assets. Empirically, I find that firms facing lower volatility are more responsive to monetary policy than firms facing higher volatility. I demonstrate that this finding is due to two channels through which volatility determines monetary policy transmission. First, volatility increases default risk, increasing borrowed funds' price. Second, volatility increases firms' hesitancy to invest (real options channel). Contrasting with the earlier literature, I show that the real options channel rather than the default risk channel matters for monetary policy transmission. Moreover, I find that the channel through which the monetary policy transmission takes place - real options or risk premium - determines whether the monetary policy increases or decreases aggregate capital relative to a model without heterogeneity, adjustment costs, and financial frictions.
Structural Transformation and the Efficacy of Monetary Policy
Ruslana Datsenko, Johannes Fleck
Does the structural transformation of the US economy limit the capacity of the Federal Reserve to influence the unemployment rate? To answer this question, we combine longitudinal and geographical variation in the employment shares of different industries by constructing a panel of industry employment shares at the state level. Using local projections we find that employment in US states with a lower share of workers in the service industry reacts more to monetary policy shocks. Specifically, the effect of a one percentage point unexpected increase in the policy interest rate decreases employment by 2 percentage polints more in states with low service shares than in states with high shares. These findings are robust across a range of econometric controls and specifications. They indicate that the transformation of the US towards a service oriented economy has decreased the capacity of the Federal Reserve to influence the trajectory of employment.
WORK In Progress
Measuring Misallocation when Firms Face Sticky Prices
Ruslana Datsenko
Recent studies show that misallocation of resources decreases TFP. In this paper, I measure how much of misallocation is due to inflation based on the standard models of sticky prices.
Ruslana Datsenko, Johannes Fleck, Adam Reiremo
It is common practice to estimate log-linearized equations using Ordinary Least Squares (OLS). To address zeros and estimation bias due to heteroscedasticity, Santos Silva and Tenreyro (2006) proposed a Pseudo-Poisson Maximum Likelihood (PPML) estimator which has become a popular alternative. In this paper, we investigate under which conditions log OLS is superior to PPML estimation. We also demonstrate the implications of our findings using a number of examples from different fields of economic research.
What Role Does Monetary Policy Play in Investments into Research and Development?
Ruslana Datsenko, Martin B. Holm
In this paper, we look at how monetary policy affects investments in research and development (R&D). A 100-bps increase in monetary policy reduces total R&D investments by about 0.5-1 percent, according to our findings. Then, we investigate the potential mechanisms by which monetary policy influences R&D investments. First, we show that the effect is primarily caused by a direct impact, followed by an indirect one. Second, we investigate the impact of firm heterogeneity on monetary policy transmission to R&D. We classify R&D investments as either internally produced or externally procured. According to our findings, the impact of monetary policy on R&D investments is greater for internal R&D than for external R&D. In contrast, we observe no significant effect on the wages of R&D personnel. Lastly, when examining firms' balance sheets, it becomes evident that financially constrained firms are the most impacted by changes in monetary policy.
Notes:
Country-Specific Effects of Euro-Area Monetary Policy: The Role of Sectoral Differences. FEDS Notes. Washington: Board of Governors of the Federal Reserve System, November 12, 2024, https://doi.org/10.17016/2380-7172.3649.
Ruslana Datsenko, Johannes Fleck
Replication files.