The Impact of Unconventional Monetary Policy on Firm Financing Constraints: Evidence from the Maturity Extension Program

Nathan Foley-Fisher, Rodney Ramcharan and Edison Yu

No 2016-025, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper investigates the impact of unconventional monetary policy on firm financial constraints. It focuses on the Federal Reserve?s maturity extension program (MEP), intended to lower longer-term rates and flatten the yield curve by reducing the supply of long-term government debt. Consistent with those models that emphasize bond market segmentation and limits to arbitrage, around the MEP?s announcement, stock prices rose most sharply for those firms that are more dependent on longer-term debt. These firms also issued more long-term debt during the MEP and expanded employment and investment. These responses are most pronounced for those firms that are larger and older, and hence less likely to be financially constrained. There is also evidence of ?reach for yield? behavior among some institutional investors, as the demand for riskier corporate debt also rose during the MEP. Our results suggest that unconventional monetary policy might have helped to relax financial constraints for some types of firms in part by inducing gap-filling behavior and affecting the pricing of risk in the bond market.

Keywords: unconventional monetary policy; firm‐financial constraints; bond markets (search for similar items in EconPapers)
JEL-codes: E52 G23 G32 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2016-02
New Economics Papers: this item is included in nep-cfn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (70)

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http://www.federalreserve.gov/econresdata/feds/2016/files/2016025pap.pdf (application/pdf)

Related works:
Journal Article: The impact of unconventional monetary policy on firm financing constraints: Evidence from the maturity extension program (2016)
Working Paper: The impact of unconventional monetary policy on firm financing constraints: evidence from the maturity extension program (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2016-25

DOI: 10.17016/FEDS.2016.025

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