Title of article
Monetarypolicyandcorporatedefault$
Author/Authors
Harjoat S. Bhamra، نويسنده ,
Issue Information
روزنامه با شماره پیاپی سال 2011
Pages
15
From page
480
To page
494
Abstract
When acorporationissuesdebtwithafixednominalcoupon,therealvalueoffuture
paymentsdecreaseswiththepricelevel.Forward-lookingcorporatedefaultdecisions
thereforedependonmonetarypolicythroughitsimpactonexpectedinflation.Webuilda
generalequilibriumeconomywithdeadweightbankruptcycoststhatdemonstrateshow
nominalrigiditiesincorporatedebtcreateanimportantroleformonetarypolicyeveninthe
absence ofstandardnominalfrictionssuchas staggeredpricesettingintheoutputmarket.
Under apassivenominalinterestratepeg,thedirecteffectsofanegativeproductivityshock
combine withdeflationtoproducestrongincentivesforcorporatedefault.Adebt-
deflationaryspiralresultswhentherearerealcostsoffinancialdistress.Inflationtargeting
eliminates thisamplificationmechanismbutfull inflationtargetingrequirespermittingthe
nominalinterestratetodependexplicitlyoncreditmarketconditions
Journal title
Journal of Monetary Economics
Serial Year
2011
Journal title
Journal of Monetary Economics
Record number
846486
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