Monetary Policy, Debt Structure, and Credit Reallocation

Research output: Working paper


Monetary tightening is associated with an expansion in business loans. Using microdata, I show that this expansion is driven by the countercyclical demands for loan financing among large unconstrained firms: they rebalance toward bank loans and away from corporate bonds as the spread of bonds over loans increases, while small firms raise more equity. To rationalize these findings, I estimate a heterogeneous-agent New Keynesian model where bank loans are senior and safer (collateralized) than defaultable bonds but issued at a greater intermediation cost. It implies that small risky firms disproportionately reduce their investment in response to interest rate hike.
Original languageEnglish (US)
Number of pages98
StatePublished - Oct 27 2020
Externally publishedYes


  • Monetary policy
  • Debt structure
  • Credit substitution
  • Firm heterogeneity
  • Redistributive effect


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