The Impact of the Federal Reserve's Large-Scale Asset Purchase Programs on Corporate Credit Risk

Simon Gilchrist and Egon Zakrajšek ()

No 19337, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Estimating the effect of Federal Reserve's announcements of Large-Scale Asset Purchase (LSAP) programs on corporate credit risk is complicated by the simultaneity of policy decisions and movements in prices of risky financial assets, as well as by the fact that both interest rates of assets targeted by the programs and indicators of credit risk reacted to other common shocks during the recent financial crisis. This paper employs a heteroskedasticity-based approach to estimate the structural coefficient measuring the sensitivity of market-based indicators of corporate credit risk to declines in the benchmark market interest rates prompted by the LSAP announcements. The results indicate that the LSAP announcements led to a significant reduction in the cost of insuring against default risk--as measured by the CDX indexes--for both investment- and speculative-grade corporate credits. While the unconventional policy measures employed by the Federal Reserve to stimulate the economy have substantially lowered the overall level of credit risk in the economy, the LSAP announcements appear to have had no measurable effect on credit risk in the financial intermediary sector.

JEL-codes: E44 E58 G2 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac, nep-mon and nep-rmg
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (71)

Published as Simon Gilchrist & Egon ZakrajÅ¡ek, 2013. "The Impact of the Federal Reserve's LargeâScale Asset Purchase Programs on Corporate Credit Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s2), pages 29-57, December.

Downloads: (external link)
http://www.nber.org/papers/w19337.pdf (application/pdf)

Related works:
Journal Article: The Impact of the Federal Reserve's Large-Scale Asset Purchase Programs on Corporate Credit Risk (2013)
Journal Article: The Impact of the Federal Reserve's Large‐Scale Asset Purchase Programs on Corporate Credit Risk (2013)
Working Paper: The impact of the Federal Reserve's Large-Scale Asset Purchase programs on corporate credit risk (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:19337

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w19337

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().