Abstract
This study employs a Factor-Augmented Vector Auto-Regression approach with Chinese bond markets and aggregated firm-level data to investigate the impact of term structure shocks on firm dynamics and aggregate firm-level variables. We address the potential endogenous issue using a novel instrumental variable based on textual analysis, and find that term structure shocks have long-run and persistent influences on several firm-level outcomes, and that firm dynamics play a critical role in the transmission of term structure shocks.
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