Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy
66 Pages Posted: 7 May 2020 Last revised: 18 Nov 2021
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Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy
Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy
Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy
Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy
Date Written: May, 2020
Abstract
We study how differences in the aggregate structure of corporate debt affect the transmission of monetary policy in a panel of euro area countries. We find that standard policy tightening shocks raise the cost of loans relative to corporate bonds. In economies with a high share of bond finance, the resultant rise in the overall cost of credit is less pronounced as a smaller portion of corporate debt is remunerated at the loan rate and firms further expand their reliance on bonds. In economies with a low share of bond finance, the rise in the cost of credit is reinforced by a shift in the composition of debt towards bank loans. As a consequence, a higher bond share goes along with a weaker transmission of short-term policy rate shocks to real activity. By contrast, the real effects of monetary policy shocks to longer-term yields strengthen with the share of bond finance in the economy.
JEL Classification: E44, E52, G21, G23
Suggested Citation: Suggested Citation