25/11/26-Finance and Accounting Research Seminar- Antoine Hubert De Fraisse

Wednesday, 25 November 2026 at 13:45

Pre-Trends Ahead of Monetary Policy Surprises: Recovering the Response of Corporate Investment

Event details

How should high-frequency monetary policy surprises be used when the outcome of interest is only observed at a lower frequency? We first document a business-cycle endogeneity problem that arises when monetary policy surprises are aggregated to monthly or quarterly frequencies: surprise policy easings (resp. tightening) tend to occur amid broader easing (resp. tightening) cycles. These low-frequency trends in pre-event Treasury yields are not reliably removed by standard controls without also weakening the relevance of the remaining policy variation. Motivated by this evidence, we next develop an alternative Q-theory-based approach for estimating the corporate investment response to monetary policy. Our approach combines high-frequency identification of firms’ valuation responses to policy surprises with low-frequency firm-level investment-Q sensitivities. Our baseline estimate is that a one-unit monetary tightening, normalized to a one percentage point increase in the one-year Treasury yield, reduces the annual tangible investment of non-financial, non-utility public firms by 0.38% of GDP, with 24% of this effect driven by a novel firm-heterogeneity channel.

Organiser

University of Exeter Business School - Finance and Accounting

Location

Constantine Leventis -Building One