The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Corporate debt in emerging markets has risen significantly in recent years amid accommodative
global financial conditions. This paper studies the relationship of leverage growth in emerging
market (EM) firms to U.S. monetary conditions, and more broadly, to global financial
conditions. We find that accommodative U.S. monetary conditions are reliably associated with
faster EM leverage growth during the past decade. Specifically, a 1 percentage point decline in
the U.S. policy rate corresponds to an appreciable increase in EM leverage growth of 9 basis
points, on average (relative to the sample average leverage growth of 35 basis points per year).
This impact is more pronounced for sectors dependent on external financing, for SMEs, and for
firms in more financially open EMs with less flexible exchange rates. The findings suggest that
global financial conditions affect EM firms' leverage growth in part by influencing domestic
interest rates and by relaxing corporate borrowing constraints.