How New Fed Corporate Bond Programs Dampened the Financial Accelerator in the Covid-19 Recession
Michael Bordo and
John Duca
No 28097, NBER Working Papers from National Bureau of Economic Research, Inc
Abstract:
In the financial crisis and recession induced by the Covid-19 pandemic, many investment-grade firms became unable to borrow from securities markets. In response, the Fed not only reopened its commercial paper funding facility but also announced it would purchase newly issued and seasoned bonds of corporations rated as investment grade before the Covid pandemic at spreads roughly 1 percentage point above non-recession averages. A careful splicing of different unemployment rate series enables us to assess the effectiveness of recent Fed interventions in these long-term debt markets over long sample periods, spanning the Great Depression, Great Recession and the Covid Recession. Findings indicate that the announcement of forthcoming corporate bond backstop facilities have capped risk premia at levels 100 basis points above non-recession averages, akin to a “penalty rate” for lender of last resort interventions during financial crises. In doing so, these Fed facilities have limited the role of external finance premia in amplifying the macroeconomic impact of the Covid pandemic. Nevertheless, the corporate bond programs blend the roles of the Federal Reserve in conducting monetary policy via its balance sheet, acting as a lender of last resort, and pursuing credit policies.
JEL-codes: E51 G12 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: AP IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)
Downloads: (external link)
http://www.nber.org/papers/w28097.pdf (application/pdf)
Related works:
Working Paper: How New Fed Corporate Bond Programs Dampened the Financial Accelerator in the COVID-19 Recession (2020) 
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:28097
Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w28097
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 ().