Corporate legacy debt, inflation, and the efficacy of monetary policy

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The COVID-19 pandemic has coincided with a further rapid increase in corporate indebtedness. This column argues that high levels of corporate debt may distort the transmission of monetary policy and make contractionary monetary policy less effective in controlling inflation. Consequently, the trade-off between inflation stabilisation and output stabilisation becomes more problematic when there is a large volume of corporate debt in the economy. 

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