US Monetary Policy Spillovers and the Zombie Lending Channel

We uncover a new channel – the zombie lending channel – for the international transmission of US monetary policy shocks to nonfinancial corporates. This channel originates from the presence of unviable and unproductive firms, the so-called zombie firms. Using balance sheet data on nonfinancial firms for a large set of countries, we find that an unexpected US interest rate hike leads to more favorable credit conditions for zombie firms relative to healthier firms, allowing zombies to cut investment and employment by relatively less. This is indicative of an evergreening motive by lenders when interest rates rise: lenders face incentives to restructure existing loans of zombie firms to avoid the realization of losses on their balance sheets. In addition, we find that the prevalence of zombie firms coupled with higher US interest rates lead to a misallocation of resources away from more productive firms, affecting healthy firms’ performance. Finally, we show that countries with tighter macroprudential measures that restrict loan supply, and with more developed insolvency frameworks help mitigate the zombie lending channel.

Date et heure: 
Mercredi 21 décembre 2022, 16:00 - 17:30
Organisation: 
National Bank of Belgium, KU Leuven, UAntwerpen, UCLouvain, UGent, ULB, ULiège, UNamur and VUB
Orateur(s): 
Bruno Albuquerque (IMF)
Lieu: 
Conference Room Lamfalussy, entrance: bd de Berlaimont 14, 1000 Brussels & Microsoft Teams meeting
Prix d'inscription: 
gratuit