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The Effect of United States Monetary Policy on Foreign Firms: Does Debt Maturity Matter?

Author

Listed:
  • Sebastiao OLIVEIRA

    (University of Illinois at Urbana-Champaign)

  • Jay RAFI

    (University of Illinois at Urbana-Champaign)

  • Pedro SIMON

    (University of Illinois at Urbana-Champaign)

Abstract

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.

Suggested Citation

  • Sebastiao OLIVEIRA & Jay RAFI & Pedro SIMON, 2024. "The Effect of United States Monetary Policy on Foreign Firms: Does Debt Maturity Matter?," Working Papers DP-2024-27, Economic Research Institute for ASEAN and East Asia (ERIA).
    • Handle: RePEc:era:wpaper:dp-2024-27
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F30 - International Economics - - International Finance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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