## wpiea2023105-print-pdf

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---

### Background, objectives, and data
- Research question: Do extended periods of ultra-loose monetary policy in advanced economies contribute to zombification of weak firms and to low growth?
- Contributions:
  - Combines macroeconomic analysis and large microdata (Orbis) to study zombification trends, resource allocation, and growth impacts.
  - Focus on effects of “too low for too long” monetary policy.
- Firm-level data:
  - Orbis: around half a million firm-year observations, spanning 1996 to 2021, ~60,000 companies from 21 countries (United States, Japan, and all 19 Eurozone countries).
- Main zombie definition:
  - Firm is at least ten years old.
  - Interest coverage ratio (ICR = earnings before interest and taxes / interest payments) is less than unity for at least two consecutive periods.
  - Robustness check uses ICR < 1 for three successive years.

### Stylized facts (firm-level patterns and shadow rates)
- Time patterns:
  - Number and share of zombie firms increase after recessions and broadly decline in other times.
  - US: zombie-share increases during early-2000s recessions, the global financial crisis, and the COVID-19 pandemic; declines in most other periods.
  - Japan: high zombie-share levels even before sample period.
  - Europe: zombie share peaked during the global financial crisis and increased most during the pandemic.
- Shadow rates and correlations:
  - Shadow rates reduced following recessions and tightened during recoveries.
  - Negative correlations often observed between the shadow rate and zombie share, with exceptions (e.g., 2011–13 US, 2011–15 Japan, 2012–15 EA).
  - Japan’s shadow rate negative since early 2000s except 2007–2008; Eurozone shadow rate turned negative during GFC and stayed negative for most subsequent years.
- Firm performance and size:
  - Zombies are more indebted and most make losses; lower sales and employment growth relative to non-zombies, though most still increased sales, employment, and borrowing except after the GFC.
  - SMEs (≤1,000 employees) have higher zombie shares than large enterprises (LEs).
  - US: average LE zombie share is 10 percent less than SMEs.
  - Japan: gap spikes around 2000 with the start of ZIRP and persists.
  - Euro Area: gap emerges in early 2000s, widens during GFC, narrows around 2020, then increases during the pandemic.

### Micro evidence: monetary policy and zombification (firm-level regressions)
- Baseline specification: linear probability model and panel probit with dependent dummy for zombie status; key regressors include shadow interest rate (Krippner (2013)), recession dummy, ZLB dummy (interest rate lower than 25 bps), interactions, SME dummy (<1,000 employees), firm- and country-level controls (real GDP growth, one-year lag of shadow rate, ROA, profit margin).
- Main findings:
  - Recession increases probability of a firm being a zombie.
  - Lower shadow rate (when policy rate above ZLB) is associated with a lower probability of zombification.
  - SMEs have higher probability of being zombies.
  - Higher aggregate output, ROA, and profit margin reduce probability of zombification.
  - Interaction effects:
    - Shadow rate alone negatively correlated with probability of zombification in first specification.
    - Controlling for ZLB, the interaction of shadow rate with the ZLB dummy yields a positive coefficient that outweighs the negative coefficient on the shadow rate: expansionary monetary policy implementation at the ZLB reduces probability of a firm being a zombie, whereas expansionary policy outside the ZLB is associated with more zombification.
  - Panel probit estimates are consistent with LPM results in sign and magnitude.

### Macro evidence: country-level zombie shares
- Specification: country fixed effects regressions of country-level zombie share (number of zombies over total firms) on macro variables.
- Findings:
  - Being in a recession or at the ZLB increases the country-level zombie share on average.
  - Expansionary measures implemented when economy reaches the ZLB are beneficial to firms, corroborating micro results.

### “Too Low for Too Long” analysis
- Long(j,t) dummy construction:
  - Equals one if (1) the policy rate was lower than 25 bps for at least two consecutive years, and (2) QE was not implemented (to isolate prolonged low policy-rate effects from QE effects).
- Main results:
  - Shadow rate negatively related to probability of being a zombie firm.
  - Long periods of low interest rates are correlated with higher probabilities of zombification.
  - Interaction between monetary policy instrument and Long dummy is negative and significant across specifications, supporting that keeping interest rates too low for extended periods increases likelihood that firms turn into zombies.
- Mechanisms:
  - Banks under capital constraints may “evergreen” loans to avoid provisioning and capital-ratio hits.
  - Expectations of prolonged low rates increase firms’ survival probabilities.
  - Japanese experience: ZIRP preceded extensive QE, illustrative of mechanism.

### Zombification and economic growth (Bayesian panel VAR results)
- Model: Bayesian panel VAR for United States, Japan, Eurozone (1996–2021) with Cholesky ordering; variables: zombie share, CPI inflation, output gap, shadow rate. Estimation uses Jarocinski (2010) hierarchical Gibbs sampler; 50,000 MCMC draws with first 20,000 burn-in.
- Impulse responses to one-standard-deviation shock to zombie share:
  - Output gap peak impacts:
    - Japan: negative 0.9 percent.
    - Euro Area: negative 0.75 percent.
    - US: negative but statistically insignificant.
  - Shadow rates decline in response as monetary authorities ease policy.
  - Shadow-rate declines are more persistent in Japan and recover faster in the US, possibly explaining stronger adverse effects in Japan and EA.
- Forecast error variance decomposition of output gap:
  - Zombie share explains around 6 percent of output-gap variability in the US, and up to 30 percent in Japan and the Eurozone.
  - Japan shows highest average contribution of zombie share to output-gap variance, followed by the Eurozone.

### Spillovers to non-zombie firms (sectoral and firm-level evidence)
- Descriptive sectoral evidence:
  - Negative correlation between sectoral zombie share and sectoral profit-margin growth.
  - Sectors with lower profit-margin growth (textiles, apparel, leather, primary sector) have higher zombie shares.
  - Gas, water, and electricity sector has lowest zombie share and highest average profit-margin growth.
- Panel fixed-effects estimates for non-zombie firms:
  - Dependent variables: employment growth and profit margin of non-zombie firms.
  - Key regressor: sector-specific zombie share.
  - Spillover estimates indicate:
    - An average 12% decrease in employment growth of healthy firms associated with higher sector zombie shares.
    - An average 12.2% decrease in profit margin of healthy firms associated with higher sector zombie shares.
- Interpretation:
  - Prolonged ultra-easy policy that increases survival of unprofitable firms can crowd out investment opportunities for healthier firms, reducing employment and profits — a form of financial repression.

### Financial stability aspects and banking-sector channels
- Banking behavior:
  - Undercapitalized banks may evergreen loans to loss-making firms to avoid provisioning; documented in Japan (1990s) and Europe (post-GFC).
- US evidence and lending standards:
  - Strong correlation between shadow rate (with two-year delay) and net changes in lending standards and terms to SMEs in US periods of low shadow rate.
  - Prolonged easing of loan standards in 2004–06 and 2010–2018 may indicate leniency toward weaker companies.
- Contrasting findings:
  - Favara and others (2021): US banks do not offer favorable credit terms to zombie firms on average — they charge higher spreads, require more collateral, offer shorter maturities, and rate zombies with higher default probability.
- Overall assessment for 21 countries:
  - Related financial-sector risks appear manageable in short-to-medium term due to post-GFC improvements:
    - Better lending and loan-classification practices.
    - Higher capital and liquidity adequacy.
    - Improved stress-testing capacity and supervision.
  - Recent stress tests and IMF FSAPs suggest systems can weather large plausible shocks.
- Medium-to-long-term concerns:
  - Prolonged low interest rates threaten net interest margins as older higher-yielding assets are replaced by lower-yielding ones over next 5–10 years.
  - Profitability pressures more intense for smaller institutions outside urban regions due to declining populations.
  - Life insurers shifting to foreign investments to meet yield needs on old policies — a potential risk to monitor.

### Key conclusions and policy implications
- Key findings:
  - Recessions and slow growth are critical drivers of increases in zombie firms.
  - Expansionary policies are effective to smooth cycles but extended periods of ultra-easy monetary policy facilitate survival of zombie firms and harm non-zombie firms through resource misallocation and reduced market shares, thus hurting growth.
  - Adverse effects of prolonged ultra-easy policy on zombification are more visible in Japan and the Eurozone; zombification’s impact on the output gap is highest in Japan and the EA.
- Policy implications and conditional guidance:
  - Use expansionary policies during recessions or slow growth if the central bank is credible and there are no inflationary pressures.
  - Be mindful of the tradeoff between short-term cyclical support and long-term risks of prolonged ultra-easy policy.
  - Adverse effects can be largely reduced if the banking system is healthy, well-supervised, and differentiates between strong and weak firms to encourage healthy competition.
  - Post-GFC reforms have strengthened financial systems and reduced evergreening risks, but risks remain if prolonged easing must be followed by tightening later; such risks should be closely monitored.

### Robustness checks (Appendix)
- Alternative zombie definition: ICR < 1 for three consecutive periods and firm at least ten years old.
- Results using the three-period definition (Table A.1, Table A.2) are similar qualitatively and quantitatively to baseline findings.
- Correlation patterns hold:
  - Expansionary policies associated with lower probabilities of zombification under the ZLB.
  - Expansionary policies associated with higher probabilities of zombification outside the ZLB.

*Source: wpiea2023105-print-pdf - Introduction*

### Introduction ...........................................................................................................

### Introduction

### Empirical Analysis of Zombification
- Section starts on page 5.
- Subsections and materials listed:
  - Stylized facts (page 5)
  - Monetary Policy and Zombification (page 9)
  - Micro data (page 9)
  - Macro data (page 11)

### Stylized facts
- Located on page 5.
- Expected to set out observed patterns used in subsequent empirical work.

### Monetary Policy and Zombification
- Located on page 9.
- Explores the link between monetary policy and firm zombification (structure indicated by the table of contents).

### Micro data
- Located on page 9.
- Indicates use of firm-level data to analyze zombification.

### Macro data
- Located on page 11.
- Indicates use of country- or aggregate-level data to analyze zombification.

### Monetary Policy: Too Low for Too Long
- Located on page 12.
- Appears to be a focal analysis linking prolonged low interest rates to zombification dynamics.

### Zombification and Economic Growth
- Located on page 15.
- Two subthemes specified:
  - Impact on Growth (page 15)
  - Spillover Effects (page 18)

### Impact on Growth
- Located on page 15.
- Presumably examines how zombie prevalence affects aggregate growth.

### Spillover Effects
- Located on page 18.
- Presumably examines effects from zombies to non-zombie firms or sectors.

### Financial Stability Aspects
- Located on page 20.
- Addresses potential financial stability implications of zombification.

### Conclusion
- Located on page 22.

### Appendix
- Located on page 24.

### References
- Located on page 26.

### Figures (listed)
- Figure 1: Share of Zombies and the Shadow Rate
- Figure 2: Zombie vs Non-zombie Performance
- Figure 3: Zombie share in SMEs vs. Large Enterprises
- Figure 4: Variables of the Panel VAR
- Figure 5: Impulse Response Functions - Zombie Share Shock
- Figure 6: Forecast Error Variance Decomposition of the Output Gap
- Figure 7: Sectoral zombie shares and economic performance
- Figure 8: Monetary Policy and Bank Lending Standards in the U.S

### Tables (listed)
- Table 1: Probability of Being a Zombie Firm during Recessions and at the ZLB
- Table 2: Effect of Macroeconomic Variables on the Country-specific Zombie Shares
- Table 3: Probability of Being a Zombie Firm During Long Periods of Low Interest Rate
- Table 4: Too Low for Too Long - Saturated Specification
- Table 5: Spillovers to Non-zombie Firms.

*IMF WORKING PAPERS Too Low for Too Long — INTERNATIONAL MONETARY FUND*

### Introduction

### Introduction

### Background and motivation
- During the Global Financial Crisis in 2008 and the COVID-19 pandemic in early 2020, central banks of advanced economies lowered policy rates effectively to the zero lower bound (ZLB) and conducted ultra-easy monetary policy, including unconventional monetary policy (UMP) operations.
- Broad consensus: these policies helped avoid a financial meltdown and close output and inflation gaps.
- Concerns highlighted:
  - Ultra-easy monetary policy for long periods could lead to unsustainable capital flows and booms in housing and financial asset prices, raising the odds of a future financial crisis.
  - Long periods of ultra-easy policy may support weak companies at the cost of healthy ones, leading to their zombification.

### Justifications and evolution of policy rationale
- Immediate justification after Lehman Brothers (September 2008) and at the start of COVID-19: restore financial stability to avert a possible financial meltdown with real-economy implications.
- Once financial systems stabilized, justification shifted toward restoring aggregate demand in the absence of inflationary pressures.
- Theoretical/practical defense:
  - Many economies were operating well below potential after 2008 and in 2020–early 2021, with subdued inflation; versions of the Taylor rule suggested the real policy rate required to reestablish full employment was significantly negative.
  - Shadow interest rates can reach negative values and are used to assess monetary stance under UMP.

### Theoretical perspectives on long-term costs
- Austrian business cycle theory (von Mises, Hayek): credit-driven expansions can cause costly misallocation of resources ("malinvestments") ending in crisis.
- Minsky’s financial-instability hypothesis (Minsky (1977)): easy monetary policy can aggravate financial fragility.
- Financial repression literature (Reinhart & Rogoff (2013); Reinhart & Sbrancia (2015)):
  - Low real interest rates act as a tax on bondholders and savers and historically contributed to reducing public debt post–Second World War under capital controls and regulatory restrictions.
  - Jafarov, Maino, and Pani (2019) estimate interest rate ceilings pose a significant drag on growth across 90 countries over 45 years.

### Informative historical cases
- Japan:
  - Following the asset price bubble collapse in late 1991, Japan experienced prolonged stagnation ("lost decade(s)").
  - Authorities ran large fiscal deficits and ultra-loose monetary policy; banks engaged in “sham loan restructurings” that kept credit flowing to otherwise insolvent borrowers, producing so-called zombies.
  - Caballero and others (2008) estimate around 30 percent of Japanese firms were recipients of zombie lending in the late 1990s.
- Eurozone:
  - Acharya and others (2019) suggest OMT programs improved peripheral banks’ health and lending but much lending benefited low-quality borrowers, producing negative spillovers to more productive firms and hindering creative destruction.

### This paper’s objectives and contributions
- Research question: Do extended periods of ultra-loose monetary policy in advanced economies contribute to zombification of weak firms and to low growth?
- Contributions:
  - Uses both macroeconomic and large microdata (Orbis) to study zombification trends and impacts on resource allocation and growth.
  - Analyzes the impact of “too low for too long” policies on zombification.

### Data and zombie-firm definition
- Firm-level annual data from Orbis (Bureau Van Dijk): around half a million firm-year observations, spanning 1996 to 2021, ~60,000 companies from 21 countries (United States, Japan, and all 19 Eurozone countries).
- Main zombie definition:
  - Firm is at least ten years old.
  - Interest coverage ratio (ICR = earnings before interest and taxes / interest payments) is less than unity for at least two consecutive periods.
  - Firms may fluctuate between zombie and non-zombie states when conditions change.
- Robustness check: alternative definition using ICR < 1 for three successive years yields similar results.
- Note: Data availability is limited for Slovakian firms compared to rest of sample.

### Stylized facts (from firm-level dataset)
- Time patterns:
  - Number and share of zombie firms increase after recessions and broadly decline in other times.
  - US: zombie-share increases during early-2000s recessions, the global financial crisis, and the COVID-19 pandemic; declines in most other periods.
  - Japan: similar pattern, but with high zombie-share levels even before sample period.
  - Europe: zombie share peaked during the global financial crisis and increased most during the pandemic.
- Shadow rates:
  - Reduced following recessions and tightened during recoveries.
  - Negative correlations often observed between the shadow rate and zombie share, with exceptions (e.g., 2011–13 US, 2011–15 Japan, 2012–15 EA).
  - Japan’s shadow rate negative since early 2000s except 2007–2008; Eurozone shadow rate turned negative during GFC and stayed negative for most subsequent years.
- Firm performance:
  - Zombie firms are more indebted and most make losses.
  - Zombies show lower sales and employment growth, though most still increased sales, employment, and borrowing except after the GFC—suggesting possible market-share gains from healthier competitors.
- Firm size patterns:
  - SMEs (≤1,000 employees) have higher zombie shares than large enterprises (LEs) across regions.
  - US: average LE zombie share is 10 percent less than SMEs.
  - Japan: gap spikes around 2000 with the start of ZIRP and persists.
  - Euro Area: gap emerges in early 2000s, widens during GFC, narrows around 2020, then increases during the pandemic.

### Monetary policy and zombification — micro evidence
- Baseline firm-level empirical specification (linear probability model and panel probit) includes:
  - Dependent variable: dummy if firm is zombie.
  - Key regressors: shadow interest rate (Krippner (2013)), recession dummy, ZLB dummy (interest rate lower than 25 bps), interaction terms, SME dummy (<1,000 employees), firm- and country-level controls (real GDP growth, one-year lag of shadow rate, ROA, profit margin).
- Main micro findings:
  - Recession increases probability of a firm being a zombie.
  - Lower shadow rate (when policy rate above ZLB) is associated with a lower probability of zombification.
  - SMEs have higher probability of being zombies.
  - Higher aggregate output, ROA, and profit margin reduce probability of zombification.
  - Interaction effects:
    - Shadow rate alone negatively correlated with probability of zombification under first specification.
    - When controlling for ZLB environments, the interaction of shadow rate with the ZLB dummy yields a positive coefficient that outweighs the negative coefficient on the shadow rate, leading to a net positive relationship — i.e., expansionary monetary policy implementation at the ZLB reduces probability of a firm being a zombie, whereas expansionary policy outside the ZLB is associated with more zombification.
  - Panel probit estimates are consistent with LPM results in sign and magnitude.

### Monetary policy and zombification — macro evidence
- Country-level zombie share (number of zombies over total firms) regressed on macro variables with country fixed effects.
- Macro findings:
  - Being in a recession or at the ZLB increases the country-level zombie share on average.
  - Expansionary measures implemented when economy reaches the ZLB are beneficial to firms, corroborating micro results.

### “Too Low for Too Long” analysis
- Constructed Long(j,t) dummy capturing prolonged low policy-rate periods:
  - Equals one if (1) the policy rate was lower than 25 bps for at least two consecutive years, and (2) QE was not implemented (to isolate prolonged low policy-rate effects from QE effects).
- Firm-level regression augmented with Long(j,t) and interaction terms.
- Findings (Table 3, Table 4):
  - Shadow rate negatively related to probability of being a zombie firm.
  - Long periods of low interest rates are correlated with higher probabilities of zombification.
  - Interaction term between monetary policy instrument and Long dummy is negative and significant across specifications, supporting that keeping interest rates too low for extended periods increases likelihood that firms turn into zombies.
- Mechanisms discussed:
  - Banks subject to strict capital requirements may “evergreen” loans to unprofitable firms to avoid provisioning and capital ratio hits.
  - Expectations: longer low-rate periods increase belief that central bank will persist with low rates, reinforcing survival of weaker firms.
  - Japanese experience highlighted as an early and illustrative case (ZIRP preceding extensive QE).

### Zombification and economic growth
- Mixed correlations:
  - Firm-level: negative correlation between GDP growth and probability of being a zombie.
  - Macro-level: relationship not always significant.
- Bayesian panel VAR (United States, Japan, Eurozone; 1996–2021) with Cholesky ordering and variables: zombie share, CPI inflation, output gap, shadow rate.
  - Estimated with Jarocinski (2010) hierarchical Gibbs sampler; 50,000 MCMC draws with first 20,000 burn-in.
- Impulse response results (one-standard-deviation shock to zombie share):
  - Output gap response:
    - Japan: peak negative impact of negative 0.9 percent.
    - Euro Area: peak negative impact of 0.75 percent.
    - US: negative but statistically insignificant.
  - Shadow rates respond by decreasing (monetary authorities respond to higher zombie share with expansionary policy).
  - Shadow-rate declines are more persistent in Japan and recover faster in the US, possibly explaining stronger adverse effects in Japan and EA.
- Forecast error variance decomposition of output gap:
  - Zombie share explains around 6 percent of output-gap variability in the US, and up to 30 percent in Japan and the Eurozone.
  - Japan shows highest average contribution of zombie share to output-gap variance, followed by the Eurozone — implying sharper economic slowdowns due to zombification in these regions.

### Spillover effects to non-zombie firms
- Descriptive sectoral evidence:
  - Negative correlation between sectoral zombie share and sectoral profit-margin growth.
  - Sectors with lower profit-margin growth (textiles, apparel, leather, primary sector) have higher zombie shares.
  - Gas, water, and electricity sector has lowest zombie share and highest average profit-margin growth.
- Panel fixed-effects specification for healthier firms in a sector:
  - Dependent variables: employment growth and profit margin of non-zombie firms.
  - Key regressors: sector-specific zombie share and its interaction with an indicator for non-zombie firm, controls include ICR, loan growth, EBIT/total assets.
- Spillover findings (Table 5):
  - An increase in sector-specific zombie share substantially reduces employment growth and profit margin of non-zombie firms in the same sector.
  - Estimates indicate an average 12% decrease in employment growth and a 12.2% decrease in profit margin of healthy firms associated with higher sector zombie shares.
- Interpretation:
  - Prolonged ultra-easy policy that increases survival of unprofitable firms can crowd out investment opportunities for healthier firms, reducing employment and profits — a form of financial repression.

### Financial stability aspects
- Banking-sector role:
  - Undercapitalized banks may evergreen loans to loss-making firms to avoid provisioning; documented in Japan (1990s) and Europe (post-GFC).
- US Senior Loan Officer Surveys on Bank Lending Practices:
  - Strong correlation between shadow rate (with two-year delay) and net changes in lending standards and terms to SMEs in US periods of low shadow rate.
  - Prolonged easing of loan standards in 2004–06 (pre-GFC) and 2010–2018 (post-GFC normalization) may indicate leniency toward weaker companies.
- Contrasting evidence:
  - Favara and others (2021): US banks do not offer favorable credit terms to zombie firms on average — they charge higher spreads, require more collateral, offer shorter maturities, and rate zombies with higher default probability.
- Overall assessment for the 21 countries studied:
  - Related financial-sector risks appear manageable in short-to-medium term.
  - Banks improved lending and loan-classification practices, capital and liquidity adequacy, and stress-testing capacity post-GFC (Basel III context).
  - Recent stress tests (banks, authorities, IMF FSAPs) suggest systems can weather large plausible shocks.
  - Improvements in supervision and crisis-management frameworks (early warning, pre-insolvency) increase capacity to identify trends and manage crises.
  - Financial systems performed well during the COVID-19 pandemic.
- Medium-to-long-term concerns, especially Japan:
  - Prolonged low interest rates threaten net interest margins as older higher-yielding assets are replaced by lower-yielding ones over next 5–10 years.
  - Profitability pressures more intense for smaller institutions outside urban regions due to declining populations.
  - Life insurers shifting to foreign investments to meet yield needs on old policies — a potential risk to monitor.

*Source: wpiea2023105-print-pdf - Introduction*

### Conclusion

### Conclusion

### Key findings on monetary policy and zombification
- Recessions and slow growth are critical factors in the increase in the number of zombie firms.
- Expansionary policies may boost economic activity and financial indicators of both zombie and non-zombie firms and are needed to smoothen economic cycles.
- Extended periods of ultra-easy monetary policy facilitate the survival of zombie firms and adversely affect non-zombie firms through resource misallocation and reduced market shares, thus hurting economic growth.
- Using ultra-easy monetary policy for long periods may lead to a combination of low interest rates, low growth, and higher financial vulnerability.
- The tradeoff: conducting countercyclical monetary policy during downturns versus the risks of prolonged expansionary policy that increases zombification.
- The adverse effects of ultra-easy monetary policy on zombification are more visible in Japan and the Eurozone; the adverse effect of the increased zombification on the output gap is the highest in Japan and the EA.

### Policy implications and conditional guidance
- Expansionary policies may be used during recessions or periods of slow growth if the central bank is credible and there are no inflationary pressures.
- Policymakers should be mindful of the tradeoff between short-term cyclical support and long-term risks of prolonged ultra-easy policy, especially during future recessions.
- The adverse effects of ultra-easy monetary policies can be largely reduced if the banking system is healthy and well-supervised and differentiates between strong and weak firms in such a way that encourages healthy competition.
- Important post-global financial crisis reforms have rendered financial systems stronger and more robust to shocks, and the risks of evergreening non-performing loans have significantly declined.
- Remaining risks to financial stability occur if extended ultra-easy monetary policy periods need to be followed by policy tightening later; such risks need to be closely monitored.

### Robustness exercises (Appendix)
- Alternative zombie-firm identification: a firm is classified as a zombie if it is at least ten years old and its ICR is lower than one for at least three consecutive periods, compared with the two periods in the baseline approach.
- Results using the three-period definition (Table A.1) are similar both qualitatively and quantitatively to baseline findings; economic intuitions from section 2.1 remain valid.
- The correlation between the shadow rate and the probability of becoming a zombie firm depends on the economic environment:
  - Expansionary policies are associated with lower probabilities of a firm being a zombie under the ZBL.
  - Expansionary policies are associated with a higher probability of being a zombie in the other periods.
- A noted difference: the coefficient for the lagged shadow rate in column (4) is very low and statistically insignificant.
- Replication of equation 2 with the three-period zombie definition (Table A.2) yields conclusions similar to the baseline estimation: keeping the interest rates low for an extended period, as during long periods of too accommodative monetary policy, is correlated with a higher probability of a firm being a zombie.

*IMF Working Paper — Conclusion and Appendix (from wpiea2023105-print-pdf)*

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_Source: https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023105-print-pdf.pdf_