Does the Cost of Private Debt Respond to Monetary Policy? Heteroskedasticity‐Based Identification in a Model with Regimes
45 Pages Posted: 24 Sep 2019
Date Written: September 2019
We investigate the effects of a conventional monetary expansion, the quantitative easing, and maturity extension programs on the yields of corporate bonds. We adopt a multiple-regime VAR identification based on heteroskedasticity. An impulse response function analysis shows that a traditional, rate based expansionary policy leads to an increase in yields. The response to quantitative easing is instead a general and persistent decrease, in particular for long-term bonds. The responses generated by the maturity extension program are significant and of larger magnitude. A decomposition shows that the unconventional programs reduce the cost private debt primarily through a reduction in risk premia.
Keywords: unconventional monetary policy; transmission channels; heteroskedasticity; vector autoregressions; identification; corporate bond yields
JEL Classification: G12, C32, G14
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