Global Demand Spillovers: When the Central Bank Buys Corporate Bonds

Abstract

Using novel data and a difference-in-differences strategy, I find that central bank corporate bond purchases spill over to foreign jurisdictions through bond underwriting networks. The diff-in-diff exploits the European Central Bank's 2016 corporate sector purchase program. I compare U.S. firms connected to underwriters with more or less Eurozone clients. Firms connected with banks with more European clients had larger orderbooks and issued more at lower costs. Treated firms do not increase real investment, but rather increase equity payouts. I identify bond underwriting networks as a novel channel through which demand shocks spread across borders. These results matter for understanding the overall impact of corporate quantitative easing programs.

Keywords: Corporate bond issuance, underwriting, monetary policy

JEL Classification: G24, G15, E52, E44