Zombie firms after the end of cheap money
Capital reallocation is a fast-rising keyword in the economics journals. After a decade of near-zero rates, interest rates rose almost everywhere, and Japan ended negative rates in 2024. Did higher rates finally clear out zombie firms and move capital to productive ones?
What prompted this#
In economics, "capital reallocation" had 6 papers in July–September 2026 against about 1 expected (see the economics dashboard). Since October 2025, "zombie firms" appears on 21 papers, "capital reallocation" on 20 and "resource misallocation" on 43. Of the 24 papers with a zombie keyword, 8 also carry an interest-rate, monetary or credit keyword.
Questions#
- Did the share of zombie firms (firms that cannot cover interest from profits for years) fall after rates rose, and did it fall through exit, restructuring or recovery?
- Did banks keep lending to them, especially banks with weak capital, as Japanese banks did in the 1990s?
- Did capital and workers move to more productive firms, and did aggregate productivity respond?
Data that could help#
Firm accounts (Orbis, Compustat Global and national data such as Japanese listed-firm data), bank-firm loan links, and policy-rate changes by country.
Next step#
Compute the zombie share by country and year for 2015–2025 with a standard interest-coverage definition, and plot it against policy rates.