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Corporate debt, repayment and maturity structure, and monetary policy transmission

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  • Hatice Gökçe Karasoy Can

Abstract

This article develops a stylized New Keynesian Dynamic Stochastic General Equilibrium model and explores the function of the repayment and maturity structure of corporate debt in the monetary policy transmission mechanism. The results demonstrate that following an unanticipated policy tightening, long-term floating-rate debt exacerbates the credit channel, causing a greater decline in investment and output due to the increased debt burden relative to long-term fixed rate debt. In response to the downward trajectory of the output, the central bank pursues a lower interest rate path, thereby inflation remains at a relatively elevated level. Thus, the monetary authority is less effective in stabilizing inflation in economies with long-term floating rates compared to those with fixed rates. Prolonging the maturity of floating-rate debt aggravates these effects and renders firms even more susceptible to adverse shocks.

Suggested Citation

  • Hatice Gökçe Karasoy Can, 2025. "Corporate debt, repayment and maturity structure, and monetary policy transmission," Oxford Economic Papers, Oxford University Press, vol. 77(2), pages 310-332.
    • Handle: RePEc:oup:oxecpp:v:77:y:2025:i:2:p:310-332.
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    File URL: http://hdl.handle.net/10.1093/oep/gpae029
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    More about this item

    Keywords

    floating-rate debt; debt maturity; monetary policy transmission; credit channel;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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