Submitted manuscript
Research output: Working paper
Research output: Working paper
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TY - UNPB
T1 - Foreign Monetary Policy and Firms' Default Risk
AU - Groba, Jonatan
AU - Serrano, Pedro
PY - 2017/10/10
Y1 - 2017/10/10
N2 - This study documents the relationship between foreign monetary policy and firms' ex-ante forward-looking default probability measures. We analyze market based measures of default for large non-financial firms in the US and the EMU area. We propose two transmission mechanisms of foreign policy shocks: the foreign demand channel and the foreign debt channel. We show that foreign monetary policy influences firms' default probability largely through the foreign demand channel. We find that the foreign debt channel only played a role for European firms during the early 2000s due to the higher exposure to USD denominated obligations. These results highlight the need for macro-prudential authorities to pay more attention to the foreign demand channel in the struggle against large default events, as the results show that the foreign debt channel is less relevant.
AB - This study documents the relationship between foreign monetary policy and firms' ex-ante forward-looking default probability measures. We analyze market based measures of default for large non-financial firms in the US and the EMU area. We propose two transmission mechanisms of foreign policy shocks: the foreign demand channel and the foreign debt channel. We show that foreign monetary policy influences firms' default probability largely through the foreign demand channel. We find that the foreign debt channel only played a role for European firms during the early 2000s due to the higher exposure to USD denominated obligations. These results highlight the need for macro-prudential authorities to pay more attention to the foreign demand channel in the struggle against large default events, as the results show that the foreign debt channel is less relevant.
KW - Foreign Monetary Policy
KW - Default Risk
KW - Foreign Demand
KW - Foreign Debt
M3 - Working paper
BT - Foreign Monetary Policy and Firms' Default Risk
PB - Lancaster University, Department of Accounting and Finance
CY - Lancaster
ER -