Crossing the credit channel: credit spreads and firm heterogeneity
Gareth Anderson () and
Ambrogio Cesa-Bianchi
Additional contact information
Gareth Anderson: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
No 854, Bank of England working papers from Bank of England
Abstract:
We show that credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a unique panel of corporate bonds matched with balance sheet data for US 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 — the excess bond premium. Consistent with the spreads response, we also document that high-leverage firms experience a sharper contraction in debt and investment than low-leverage firms. Our results provide evidence that balance sheet effects are crucial for understanding the transmission mechanism of monetary policy.
Keywords: Monetary policy; heterogeneity; credit spreads; excess bond premium; credit channel; financial accelerator; event-study; identification (search for similar items in EconPapers)
JEL-codes: E44 F44 G15 (search for similar items in EconPapers)
Pages: 75 pages
Date: 2020-02-07
New Economics Papers: this item is included in nep-cba, nep-cfn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)
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https://www.bankofengland.co.uk/-/media/boe/files/ ... rm-heterogeneity.pdf Full text (application/pdf)
Related works:
Working Paper: Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity (2020) 
Working Paper: Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity (2020) 
Working Paper: Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity (2020) 
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0854
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