Interest Expenses, Coverage Ratio, and Firm Distress

Falk Bräuning, Gustavo Joaquim and Hillary Stein
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Hillary Stein: https://www.bostonfed.org/people/bank/hillary-stein.aspx

Current Policy Perspectives from Federal Reserve Bank of Boston

Abstract: Historically, the pass-through of federal funds rate increases into firms’ interest expenses has been incomplete and delayed, with the peak responses occurring about one year after a policy rate increase. These findings indicate that current corporate interest rate expenses will continue to increase, even absent any additional rate hikes going forward. Higher interest expenses can lead to firm distress and defaults, which have adverse effects on employment and investment. These effects can be amplified through the financial accelerator channel.

Keywords: monetary policy; interest expenses; firm distress (search for similar items in EconPapers)
JEL-codes: E32 E52 G32 (search for similar items in EconPapers)
Pages: 8
Date: 2023-08-29
New Economics Papers: this item is included in nep-cba and nep-cfn
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