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News

Job Market Seminar

Venue: Shabolovka st. 26, Room 3211


On Monday, January 20  at 4.40pm  International College of Economics and Finance held a Job Market Seminar.
Speaker:  Michele Piffer (LSE)
Theme:  «Monetary Policy and Defaults in the US» 
Venue:  Shabolovka st., 26, room 3211

Abstract: I document empirically that an unexpected monetary expansion increases the probability that non-financial firms default on loans. I use a three-step approach that applies local projections on several time series of monetary shocks selected with Granger-causality restrictions. I find that the default probability on US business loans, measured with the delinquency rate and the charge-off rate, increases between two and three years after a monetary expansion. A leverage effect on the side of firms could contribute to explain this result. When the policy rate decreases, the cost of borrowing falls and firms react by taking on more debt and increasing leverage. This, in turn, decreases the relative buffer given by net worth to the risky loan and pushes up defaults. I find evidence consistent with this effect, because the aggregate leverage ratio of US firms does increase in response to a monetary expansion. 


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