The Effect of United States Monetary Policy on Foreign Firms: Does Debt Maturity Matter?
Date:
26 September 2024Category:
Finance and Macroeconomy, InvestmentType:
Discussion PapersTags:
Monetary policy, Financial constraints, Foreign firms, United StatesPrint Article:
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.
