The effect of monetary policy on corporate bankruptcies: evidence from the United States

Bekzod Sarikov and Alexey Kuprianov

Applied Economics, 2020, vol. 52, issue 47, 5158-5168

Abstract: In this article, we study the relationship between monetary policy and corporate bankruptcies in the USA. The main hypothesis is that an increase in the monetary base or a decrease in the federal funds rate reduces the probability of corporate bankruptcies. The main intuition lies in the economic mechanism through which both of these actions accelerate inflation and lower the real value of corporate debt. The results strongly support the main hypothesis of the paper. In addition, we also study the impact of other macroeconomic variables on bankruptcy rates. Our findings show that the total reserves of depositary institutions and the overall performance of the US corporate sector are negatively related to the frequency of corporate failures.

Date: 2020
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DOI: 10.1080/00036846.2020.1757612

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