Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy

63 Pages Posted: 6 Apr 2021 Last revised: 8 May 2021

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: April 1, 2021

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.

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 (April 1, 2021). European Economic Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3817345 or http://dx.doi.org/10.2139/ssrn.3817345

Federic Holm-Hadulla

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Claire Thürwächter (Contact Author)

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

Stockholm, SE-10691
Sweden

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