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Corporate debt composition, access to credit, and monetary policy

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  • Gulan, Adam
  • Silvo, Aino

Abstract

In both the U.S. and the euro area, the share of market finance in aggregate corporate credit has grown over time. To study the implications of the corporate debt structure for the transmission of monetary policy, we develop a New Keynesian DSGE model in which firms differ in productivity and may finance themselves with either bonds or loans. Our setup makes the aggregate corporate debt composition and firms' credit access endogenous and dependent on aggregate economic conditions. The model rationalizes the empirically documented substitution from bank loans to bond finance following a monetary policy contraction. Credit is squeezed for those bank-dependent firms that cannot access the bond market. A structural shift in the aggregate bond-to-loan ratio among credit-eligible firms affects financial market dynamics, but does not materially change the overall impact of monetary policy shocks on the macroeconomy. Instead, in an economy with greater credit access, aggregate demand is less responsive to monetary policy shocks.

Suggested Citation

  • Gulan, Adam & Silvo, Aino, 2026. "Corporate debt composition, access to credit, and monetary policy," Bank of Finland Research Discussion Papers 7/2026, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:342406
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    Keywords

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    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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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