Monetary Policy, Business Liquidity and Survival: Evidence from the Refinancing Channel

Abstract We study the impact of the refinancing channel of monetary policy on very small and medium-sized businesses. Using data covering the near universe of these businesses, we find that increased household refinancing reduces the probability that a business exits or exhausts its debt capacity in the calendar year, as well as 6 years after the first exposure. It also helps younger businesses maintain credit relationships. Financial factors, like business liquidity, as well as local demand dependence, amplify these effects, especially for very small businesses. These results suggest that the refinancing channel of monetary policy can have large long-run effects on local economies. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.