At the 80th CNB Economic Workshop, professor Zoran Ivković from Michigan State University today presented his research paper “Inflation Shocks and Maturity Walls: Aggregate Effects, Corporate Decisions, and Asset Prices”, co-authored with Ranadeb Chaudhuri (Oakland University) and Morado Zekhnini (Michigan State University).

The paper analyses how unexpected inflation not only redistributes nominal wealth, but also alters corporate refinancing risk. Based on data on surprises in the CPI inflation rate, the authors showed that positive inflation surprises reduce overall corporate investment, with real effects being the most pronounced among companies whose debt is soon due.

Companies with long-term debt are largely shielded from these effects, while companies facing significant debt maturities reduce capital investment and research and development spending, increase equity issuance and reduce net issuance of new debt. Bond markets and share markets price in the same risk exposure: credit spreads increase and companies with maturing debt have weaker market returns.

The research findings complement the view that inflation reduces the real value of debt, showing that in certain circumstances the refinancing risk can outweigh the benefits that debtors derive from inflation.

Zoran Ivković is one of the most internationally prominent Croatian economists in the field of finance. He is a professor at Michigan State University and his papers have been published in leading global economic and financial journals, including the American Economic Review, the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, Management Science, and the Journal of Financial and Quantitative Analysis. His research papers have also been cited in prestigious international media outlets such as the Financial Times, The New York Times and The Wall Street Journal.