Template-Type: ReDIF-Paper 1.0
Title: Corporate Debt Maturity Matters For Monetary Policy
Author-Name: Joachim Jungherr
Author-Email:  joachim.jungherr@uni-bonn.de
Author-Name: Matthias Meier
Author-Email: m.meier@uni-mannheim.de
Author-Name: Timo Reinelt
Author-Email: timo.reinelt@uni-mannheim.de
Author-Name: Immo Schott
Author-Email: immoschott@gmail.com
Classification-JEL:  E32, E44, E52
Keywords: monetary policy, investment, corporate debt, debt maturity


Abstract: We provide novel empirical evidence that firms’ investment is more responsive to
monetary policy when a higher fraction of their debt matures. In a heterogeneous
firm New Keynesian model with financial frictions and endogenous debt maturity, two
channels explain this finding: (1.) Firms with more maturing debt have larger roll-
over needs and are therefore more exposed to fluctuations in the real interest rate
(roll-over risk). (2.) These firms also have higher default risk and therefore react more
strongly to changes in the real burden of outstanding nominal debt (debt overhang). In
comparison to existing models, we show that a model which accounts for the maturity
of debt and its distribution across firms implies larger aggregate effects of monetary
policy.


Note: 
Length: 73
Creation-Date: 2022-07
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp360
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2022_360