Quantitative Easing and Credit Rating Agencies

Posted: 13 Jul 2021

See all articles by Nordine Abidi

Nordine Abidi

International Monetary Fund

Matteo Falagiarda

European Central Bank (ECB)

Ixart Miquel-Flores

European Central Bank (ECB); Frankfurt School of Finance & Mangement.

Date Written: July 6, 2021

Abstract

This paper investigates the behaviour of credit rating agencies using a natural experiment in monetary policy. We exploit the corporate QE of the Eurosystem and its rating-based specific design which generates exogenous variation in the probability for a bond of becoming eligible for outright purchases. We show that after the launch of the policy, rating activity was concentrated precisely on the territory where the incentives of market participants are expected to be more sensitive to the policy design. Our findings contribute to better assessing the consequences of the explicit reliance on CRAs ratings by central banks when designing monetary policy. They also support the Covid-19 monetary stimulus, and in particular the waiver of private credit rating eligibility requirements applied to recently downgraded issuers.

Keywords: Credit Rating Agencies, Monetary Policy, Quantitative Easing

JEL Classification: E44, E52, E58, G24, G30

Suggested Citation

Abidi, Nordine and Falagiarda, Matteo and Miquel-Flores, Ixart, Quantitative Easing and Credit Rating Agencies (July 6, 2021). Available at SSRN: https://ssrn.com/abstract=3881175 or http://dx.doi.org/10.2139/ssrn.3881175

Nordine Abidi

International Monetary Fund ( email )

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

Matteo Falagiarda

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ixart Miquel-Flores (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstra├če 20
Frankfurt am Main, 60325
Germany

Frankfurt School of Finance & Mangement. ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

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