G. Ruiz Radrigan (Job Market Paper) [paper link]

Abstract: Corporate deposits have expanded markedly over the past two decades, and the deposit spread—the policy rate minus the deposit rate—stayed at 300–400 bps for over a year in the recent tightening cycle. This paper develops a general-equilibrium model that quantifies how the firm deposit spread affects the transmission of monetary policy to inflation and real activity. Firms face a cash-flow mismatch: wages must be paid before production, so the wage bill is pre-funded with deposits-in-advance and intertemporal borrowing. The financing mix generates a net debt-revaluation channel—inflation revalues the net nominal position tied to working capital—breaking monetary-policy neutrality under flexible prices. Incomplete pass-through on corporate deposits strengthens this mechanism and alters the sensitivity of inflation to the policy rate, uncovering a deposit-side cost channel. Micro-level evidence is provided by constructing disaggregated corporate deposit rates—merging firm-level data with regulatory bank filings—and showing that higher corporate deposit spreads reduce firms’ wage expenditure. Quantitatively, during 2023–2024 and in the run-up to the global financial crisis, the elevated spread implied a policy rate over 50 bps higher, added about 50–160 bps to cumulative inflation, and generated a cumulative output loss of about 1–2.3%, relative to a perfectly competitive benchmark, in the euro area and the US.