Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy

39 Pages Posted: 6 Apr 2020

See all articles by Federic Holm-Hadulla

Federic Holm-Hadulla

European Central Bank (ECB)

Claire Thürwächter

Stockholm University - Institute for International Economic Studies (IIES)

Multiple version iconThere are 4 versions of this paper

Date Written: March 11, 2020

Abstract

We study how differences in the aggregate structure of corporate debt financing affect the transmission of monetary policy. Using high-frequency financial market data to identify monetary policy shocks in a panel of euro area countries, we find that: bond finance dampens the overall response of firm credit to monetary policy shocks in economies with a high initial share of bond- relative to bank-based finance; this effect weakens, and may even reverse, in economies with a low share of bond financing; and the dampening effect of a larger bond financing share also attenuates the ultimate impact of monetary policy on economic activity. These findings point to corporate bond markets acting as a “spare tire” in situations when bank lending contracts.

Keywords: Firm Financing Structure, Bank Lending, Corporate Bonds, High-Frequency Identification, Local Projections

JEL Classification: E44, E52, G21, G23

Suggested Citation

Holm-Hadulla, Federic and Thürwächter, Claire, Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy (March 11, 2020). ECB Working Paper, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3552049

Federic Holm-Hadulla (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Claire Thürwächter

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden

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