Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy
42 Pages Posted: 7 May 2020
Date Written: May, 2020
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: bank lending, corporate bonds, firm financing structure, high-frequency identification, local projections
JEL Classification: E44, E52, G21, G23
Suggested Citation: Suggested Citation