Corporate Debt Maturity, Repayment Structure and Monetary Policy Transmission

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Title:

Corporate Debt Maturity, Repayment Structure and Monetary Policy Transmission

Number:

20/09

Author(s):

Hatice Gökçe Karasoy Can

Language:

English

Date:

May 2020

Abstract:

Taking a theoretical stand, this paper studies the role of corporate debt maturity and its repayment structure in monetary policy transmission mechanism. It builds on a stylized New Keynesian dynamic stochastic general equilibrium (NK-DSGE) model and discusses the transmission under various corporate debt structures. The results show that a given contractionary monetary policy is less effective in terms of stabilizing inflation when debt contracts are written on a floating rate basis. Moreover, increased corporate debt burden amplifies the real effects of the credit channel. Extending the maturity of floating rate debt aggravates these effects and makes firms even more vulnerable to adverse shocks.

Keywords:

Floating rate debt, Debt maturity, Monetary policy transmission, Credit channel

JEL Codes:

E43; E44; E52; E58; G30

Corporate Debt Maturity, Repayment Structure and Monetary Policy Transmission