Quantitative Easing, Investment, and Safe Assets: The Corporate-Bond Lending Channel
46 Pages Posted: 26 May 2020 Last revised: 18 Jan 2024
Date Written: January 16, 2024
Abstract
We show that Quantitative Easing (QE) stimulates investment via a corporate-bond lending channel. Fed's large-scale purchases of MBS and treasuries create a vacuum of safe assets, prompting safer firms to invest by issuing relatively “safe” bonds. Using micro-data around different QE rounds, our robust results suggest that QE increases the investment of firms with bond market access. The effect is larger for safer firms. This growth is financed with senior bonds, without higher shareholders' payouts. Results hold excluding the financial crisis period. The findings support a stylized model where lower supply of treasuries reduces “safe” corporate bond yields, stimulating investment.
Keywords: Quantitative Easing (QE), Corporate-Bond Lending Channel, Investment, Safe Assets, Financing
JEL Classification: E5, G01, G31, G32, G38
Suggested Citation: Suggested Citation