Term structures and firm dynamics: A FAVAR approach

Li Su and Jingjing Zhu

Economics Letters, 2024, vol. 244, issue C

Abstract: This study employs a Factor-Augmented Vector Auto-Regression approach with Chinese bond markets and aggregated firm-level data to investigate the impact of term structure shocks on firm dynamics and aggregate firm-level variables. We address the potential endogenous issue using a novel instrumental variable based on textual analysis, and find that term structure shocks have long-run and persistent influences on several firm-level outcomes, and that firm dynamics play a critical role in the transmission of term structure shocks.

Keywords: Term Structures; Firm dynamics; FAVAR Model (search for similar items in EconPapers)
JEL-codes: C5 D2 E4 E5 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:244:y:2024:i:c:s0165176524004464

DOI: 10.1016/j.econlet.2024.111962

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