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Differential effects of unconventional monetary policy on syndicated loan contracts

Takaoka, Sumiko and Takahashi, Koji (2018): Differential effects of unconventional monetary policy on syndicated loan contracts.

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Abstract

We investigate the effects of monetary policy on the financing policies of firms through the expected market interest rate channel at the firm level with Japanese syndicated loan contracts from 2000 to 2016, when monetary policy in Japan was almost stuck at the zero bound and the Bank of Japan introduced various unconventional monetary policy measures. To identify the interest rate channels of this monetary policy, we control for both observed and unobserved firm heterogeneity and unobserved time-varying bank heterogeneity in loan contracts. The evidence presented here demonstrates that both pricing (loan spread) and non-pricing (loan maturity) terms of loan contracts are affected by monetary policy shocks. In particular, monetary policy shocks have heterogeneous effects on loan maturity. The response to a monetary policy shock associated with a decrease in long-term interest rates is significant only for the borrower group with access to bonds, that is, less financially constrained firms.

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