Do Corporate Bond Shocks Affect Commercial Bank Lending?

Mario Catalan and Alexander Hoffmaister

No 2023/156, IMF Working Papers from International Monetary Fund

Abstract: Understanding how corporate bond market disruptions are transmitted to the rest of the financial system is essential to gauge systemic financial risk and design policy responses. In this study, we extend the vector autoregression model of Gilchrist and Zakrajšek (2012) to explicitly account for the role of commercial banks in the transmission of corporate bond credit spread shocks. We find that corporate bond market shocks can reduce commercial bank lending activity by tightening loan supply. Policies designed to contain stress in the corporate bond market can thus mitigate systemic risk by limiting contagion to the commercial banking sector.

Keywords: excess bond premium; banks; VAR models; financial markets and the macroeconomy; systemic risk; contagion.; corporate bond market shock; corporate bond market disruption; banking sector variable; commercial bank lending; corporate bond shock; Bank credit; Commercial banks; Corporate bonds; Securities markets; Bonds; Global (search for similar items in EconPapers)
Pages: 29
Date: 2023-08-04
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-fmk and nep-mfd
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