FINANCIAL CRISES, MONETARY POLICY, AND THE COST OF CAPITAL FOR FIRMS
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Abstract
This paper investigates the impact of monetary policy during crisis episodes on firms’ cost of leverage, measured by the Weighted Average Cost of Capital (WACC). Using econometric analysis, the study provides robust evidence that higher WACC levels are systematically associated with increased financial fragility, even after accounting for unobservable firm heterogeneity and time-specific macroeconomic conditions. The results further show that this effect intensifies under weak economic growth or in the presence of external shocks, such as exchange rate depreciation. Notably, the analysis highlights significant sectoral heterogeneity: Firms in tradable industries, which are more exposed to international trade and global financial dynamics, exhibit greater sensitivity to changes in WACC. These findings underscore the importance of incorporating sector-specific structural vulnerabilities into the design of monetary and economic policy interventions aimed at mitigating systemic risks.
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References
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