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Corporate Debt Composition and Business Cycles

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  • Jelena Zivanovic

Abstract

Based on empirical evidence, I propose a dynamic stochastic general equilibrium model with two financial sectors to analyze the role of corporate debt composition (bank versus bond financing) in the transmission of economic shocks. It is shown that in the presence of monetary and financial shocks, cyclical changes in corporate debt composition significantly attenuate the effects on investment and output. An additional result of the theoretical model is that a bank-dependent economy is more affected by financial shocks, which is in line with empirical results by Gambetti and Musso (2016), who report stronger real effects of loan supply shocks in Europe (with an excessive reliance on bank debt) than in the US.

Suggested Citation

  • Jelena Zivanovic, 2019. "Corporate Debt Composition and Business Cycles," Staff Working Papers 19-5, Bank of Canada.
    • Handle: RePEc:bca:bocawp:19-5
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    References listed on IDEAS

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    2. A. Bartocci & L. Burlon & A. Notarpietro & M. Pisani, 2021. "Macroeconomic Effects of Non‐Standard Monetary Policy Measures in the Euro Area: The Role of Corporate Bond Purchases," Manchester School, University of Manchester, vol. 89(S1), pages 97-130, September.
    3. Jelena Zivanovic, 2021. "An Optimal Macroprudential Policy Mix for Segmented Credit Markets," Staff Working Papers 21-31, Bank of Canada.
    4. Martins, Manuel M.F. & Verona, Fabio, 2021. "Bond vs. bank finance and the Great Recession," Finance Research Letters, Elsevier, vol. 39(C).

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    More about this item

    Keywords

    Business fluctuations and cycles; Financial Institutions; Financial markets; Recent economic and financial developments;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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