Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy
63 Pages Posted: 6 Apr 2021 Last revised: 8 May 2021
Date Written: April 1, 2021
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: Suggested Citation