EconPapers    
Economics at your fingertips  
 

Debt maturity heterogeneity and investment responses to monetary policy

Minjie Deng and Min Fang ()

European Economic Review, 2022, vol. 144, issue C

Abstract: We study how debt maturity heterogeneity determines firm-level investment responses to monetary policy shocks. We first document that debt maturity significantly affects the responses of firm-level investment to conventional monetary policy shocks: firms who hold more long-term debt are less responsive to monetary shocks. The magnitude of responses due to debt maturity heterogeneity is comparable to the well-documented responses due to debt level heterogeneity. Evidence from credit ratings and borrowing responses indicates that the higher future default risk embedded in long-term debt plays an essential role. We then develop a heterogeneous firm model with investment, long-term and short-term debt, and default risk to quantitatively interpret these facts. Conditional on the level of debt, firms with more long-term debt are more likely to default on their external debt and consequently face a higher marginal cost of external finance. As a result, these firms are less responsive in terms of investment to expansionary monetary shocks. The effect of monetary policy on aggregate investment, therefore, depends on the distribution of debt maturity.

Keywords: Monetary policy; Firm heterogeneity; Debt maturity; Financial frictions (search for similar items in EconPapers)
JEL-codes: E44 E52 G31 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292122000393
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Debt Maturity Heterogeneity and Investment Responses to Monetary Policy (2021) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:144:y:2022:i:c:s0014292122000393

DOI: 10.1016/j.euroecorev.2022.104095

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-09-09
Handle: RePEc:eee:eecrev:v:144:y:2022:i:c:s0014292122000393