Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity

68 Pages Posted: 26 Jan 2021

See all articles by Gareth Anderson

Gareth Anderson

International Monetary Fund (IMF)

Ambrogio Cesa-Bianchi

Bank of England

Date Written: December 1, 2020


Credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a panel of corporate bonds matched with balance sheet data for U.S. non-financial firms, we document that firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage. A large fraction of this increase is due to a component of credit spreads that is in excess of firms' expected default. Our results suggest that frictions in the financial intermediation sector play a crucial role in shaping the transmission mechanism of monetary policy.

JEL Classification: E44, E50, G10, E52

Suggested Citation

Anderson, Gareth and Cesa-Bianchi, Ambrogio, Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity (December 1, 2020). IMF Working Paper No. 2020/267, Available at SSRN:

Gareth Anderson (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ambrogio Cesa-Bianchi

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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