Abstract
Extended periods of ultra-low monetary policy rates in advanced economies have rekindled debates about the zombification of weak companies and its impact on resource allocation, economic growth, inflation, and financial stability. Using both firm-level and macroeconomic data, we find that recessions are a critical factor in the increase in the number of zombie firms and that extended periods of low interest rates are associated with a higher probability of zombification. Our findings imply a trade-off between conducting a countercyclical monetary pol icy and using expansionary tools for long periods, which may lead to a combination of low interest rates, low growth, and high financial vulnerability. We also find that strong banking supervision reduces the probability of zombification.
Authors
- Etibar Jafarov
- Enrico Minnella
JEL codes
- E44
- E52
- E58
- G20