The Effect of United States Monetary Policy on Foreign Firms: Does Debt Maturity Matter?

Sebastiao Oliveira, Jay Rafi and Pedro Simon
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Sebastiao Oliveira: University of Illinois at Urbana-Champaign
Jay Rafi: University of Illinois at Urbana-Champaign
Pedro Simon: University of Illinois at Urbana-Champaign

No DP-2024-27, Working Papers from Economic Research Institute for ASEAN and East Asia (ERIA)

Abstract: We provide novel evidence that corporate debt maturity plays an important role in the transmission of United States (US) monetary policy to foreign firms. Using an identification strategy that explores the ex-ante maturity structure of long-term debt to predict firms’ financial positions in a given year, we show that the effect of US monetary policy shocks on foreign firms is amplified by financing constraints. After a contractionary shock, financial conditions in foreign countries become tighter, and firms with a high proportion of long-term debt maturing right after the shock significantly decrease investment and sales. We find that firms in emerging economies are much more affected by these shocks compared to those in advanced economies, and the amplification effect of US monetary policy shocks by financing constraints is present only in emerging economies.

Keywords: Monetary policy; financial constraints; foreign firms (search for similar items in EconPapers)
JEL-codes: E52 F30 G32 (search for similar items in EconPapers)
Date: 2024-09-26
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mon
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