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We propose a simple empirical strategy that combines (i) administrative firm-level data,
(ii) identified monetary policy shocks, and (iii) survey data on financing activities. The key
novelty is a firm-level proxy for the likelihood of being credit constrained, constructed using
data on realized outcomes of financing requests. Leveraging heterogeneity in the proxy
and employment responses to monetary policy shocks, we find that credit constraints amplify
monetary policy transmission and account for roughly two thirds of the aggregate
employment response to monetary policy. Our findings imply redistributive effects across
firms (large firms barely respond to monetary policy) and a state-dependence to the current
tightness of constraints.
