The Bond Lending Channel of Monetary Policy

57 Pages Posted: 15 Jul 2019 Last revised: 19 Feb 2020

See all articles by Olivier Darmouni

Olivier Darmouni

Columbia University - Columbia Business School

Oliver Giesecke

Columbia University

Alexander Rodnyansky

University of Cambridge - Faculty of Economics

Date Written: February 18, 2020

Abstract

An increasing share of firms' borrowing occurs through bond markets. How does debt structure affect the transmission of monetary policy? We present a high-frequency framework that combines identified monetary shocks with a cross-sectional firm-level stock price reaction. An envelope argument shows that, since firms maximize equity value subject to constraints, stock price reactions reflect how monetary policy affects constraints. We find that, contrary to standard bank lending channel predictions, bond financing does not attenuate monetary transmission in the Eurozone: firms with more bonds are more affected by surprise monetary tightenings relative to other firms. This is consistent with significant bond-specific frictions that limit the benefits of disintermediation.

Keywords: Monetary policy, debt structure, stock market, banking relationships, corporate bonds

JEL Classification: E44, E52, G21, G23

Suggested Citation

Darmouni, Olivier and Giesecke, Oliver and Rodnyansky, Alexander, The Bond Lending Channel of Monetary Policy (February 18, 2020). Available at SSRN: https://ssrn.com/abstract=3419235 or http://dx.doi.org/10.2139/ssrn.3419235

Olivier Darmouni (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Oliver Giesecke

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Alexander Rodnyansky

University of Cambridge - Faculty of Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

HOME PAGE: http://www.arodnyansky.com

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
142
Abstract Views
735
rank
212,655
PlumX Metrics