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Term structures and firm dynamics: A FAVAR approach

Author

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  • Su, Li
  • Zhu, Jingjing

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.

Suggested Citation

  • Su, Li & Zhu, Jingjing, 2024. "Term structures and firm dynamics: A FAVAR approach," Economics Letters, Elsevier, vol. 244(C).
    • Handle: RePEc:eee:ecolet:v:244:y:2024:i:c:s0165176524004464
    DOI: 10.1016/j.econlet.2024.111962
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • D2 - Microeconomics - - Production and Organizations
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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