33. Does an Increase in the Value of Companies’ Cash Holdings Impact the Transmission of Expansionary Monetary Policy Shocks? Counterfactual Policy Analysis

Evidence indicates that expansionary monetary policy shocks raise credit growth more than the counterfactual suggests in the low economic policy uncertainty regime. This suggests that, in the low economic policy uncertainty environment, the slowdown in the companies’ deposits growth due to an expansionary monetary policy shock amplifies the increases in the credit growth. By contrast, an expansionary monetary policy shock raises credit growth less than the counterfactual in the high uncertainty regime. This is due to an increase in the growth of companies’ deposits in the high uncertainty regime, which dampens credit growth. The multiplier mechanism in the credit creation based on deposits is weakened in the high economic policy uncertainty periods and this weakens the stimulatory effects of expansionary monetary policy shocks.