Making Room for the Needy: The Credit-Reallocation Effects of the ECB's Corporate QE

39 Pages Posted: 12 Dec 2017

See all articles by Oscar Arce

Oscar Arce

Banco de España

Ricardo Gimeno

Banco de España

Sergio Mayordomo

Banco de España

Date Written: December 11, 2017

Abstract

We analyse how the European Central Bank’s purchases of corporate bonds under its Corporate Sector Purchase Programme (CSPP) affected the financing of Spanish nonfinancial firms. Our results show that the announcement of the CSPP in March 2016 significantly raised firms’ propensity to issue CSPP-eligible bonds. The flipside was a drop in the demand for bank loans by these firms. This drop in the demand for credit by bondissuers, which are usually large corporations, unchained a positive and significant side effect on the flow of new loans extended to – typically smaller – firms that do not issue bonds. Specifically, we find that around 78% of the drop in loans previously given to bond issuers was redirected to other companies, which led them to raise investment. This reallocation of credit was amplified by the ECB’s Targeted Longer Term Refinancing Operations (TLTRO).

Keywords: unconventional monetary policy, Corporate Sector Purchase Programme, quantitative

JEL Classification: E44, E52, E58, G2, G12, G15

Suggested Citation

Arce, Oscar and Gimeno, Ricardo and Mayordomo, Sergio, Making Room for the Needy: The Credit-Reallocation Effects of the ECB's Corporate QE (December 11, 2017). Banco de Espana Working Paper No. 1743. Available at SSRN: https://ssrn.com/abstract=3085810 or http://dx.doi.org/10.2139/ssrn.3085810

Oscar Arce (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Ricardo Gimeno

Banco de España ( email )

Madrid 28014
Spain

Sergio Mayordomo

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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