Heterogeneity in corporate debt structures and the transmission of monetary policy

Fédéric Holm-Hadulla and Claire Thürwächter

No 2402, Working Paper Series from European Central Bank

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. JEL Classification: E44, E52, G21, G23

Keywords: bank lending; corporate bonds; firm financing structure; high-frequency identification; local projections (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Note: 1624014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Journal Article: Heterogeneity in corporate debt structures and the transmission of monetary policy (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202402

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