The Income Statement Channel of Monetary Policy

54 Pages Posted: 28 Apr 2021 Last revised: 18 Jan 2022

Date Written: January 18, 2022


We study the dynamic transmission of monetary policy shocks into corporate profitability. We find an initial negative association between monetary policy shocks and corporate revenues and expenses. The revenue response is consistent with a consumer substitution effect, while the expense response is consistent with a firm cost of capital effect. The expense effect exceeds the revenue effect, yielding a positive relation between the shocks and profitability in the short run. Both effects are concentrated in cash revenues and expenses. Results vary predictably with consumers’ and firms’ financial constraints, firms’ business models, and the accounting treatment of investment outlays.

Keywords: Monetary Policy, Consumption, Investment, Revenues, Expenses, Earnings

JEL Classification: E22, E52, M41

Suggested Citation

Binz, Oliver and Kubic, Matthew and Joos, Peter R., The Income Statement Channel of Monetary Policy (January 18, 2022). Available at SSRN: or

Oliver Binz (Contact Author)

INSEAD ( email )

Boulevard de Constance
CEDEP No. 11
F-7705 Fontainebleau Cedex, 77305

Matthew Kubic

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Peter R. Joos

INSEAD ( email )

1 Ayer Rajah Avenue
Singapore, 138676

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