Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/325483 
Year of Publication: 
2025
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 7/2025
Publisher: 
Bank of Finland, Helsinki
Abstract: 
This study examines the floating rate channel-a mechanism through which monetary policy affects firms' investment and credit demand based on their exposure to variable rate loans. Using a granular loan-level dataset from the euro area, we find that firms with variable rate loans significantly reduce their investment-related borrowing after monetary tightening, compared to firms with fixed rate loans. This effect is most pronounced among the smallest firms, consistent with the theoretical view that the floating rate channel is explained by financial constraints. Our results highlight the heterogeneity in firms' reactions to interest rate changes and underscore the importance of accounting for firm size and financial constraints in monetary policy analysis.
Subjects: 
monetary policy
floating rate channel
euro area
JEL: 
G21
G30
E52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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