The Bond Lending Channel of Monetary Policy

59 Pages Posted: 15 Jul 2019 Last revised: 11 Apr 2022

See all articles by Olivier Darmouni

Olivier Darmouni

Columbia University - Columbia Business School

Oliver Giesecke

Stanford University - Hoover Institution

Alexander Rodnyansky

University of Cambridge - Faculty of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: April 8, 2022

Abstract

Corporate bond markets are a growing source of funding for companies throughout the world. How does a firm's debt composition affect the transmission of monetary policy? When frictions in bond financing are large, a bond lending channel can potentially dominate the conventional bank lending channel. We present high-frequency evidence consistent with this mechanism in the euro area: firms with more bonds are more affected by surprise monetary actions than their counterparts. This finding stands in contrast to the bank lending channel, suggesting that the role of bond financing in monetary transmission is more complex than previously thought.

Keywords: Monetary policy, corporate bonds, corporate finance, bank lending channel, high-frequency identification

JEL Classification: E44, E52, G21, G23

Suggested Citation

Darmouni, Olivier and Giesecke, Oliver and Rodnyansky, Alexander, The Bond Lending Channel of Monetary Policy (April 8, 2022). Columbia Business School Research Paper Forthcoming, 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

Stanford University - Hoover Institution ( email )

Stanford, CA 94305
United States

Alexander Rodnyansky

University of Cambridge - Faculty of Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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