The Impact of the PEPP on the Corporate Commercial Paper Market

Val re Fourel and Alice Schwenninger

Working papers from Banque de France

Abstract: The Covid-19 crisis triggered a dash for cash phenomenon that revealed vulnerabilities on short-term debt markets. To foster monetary policy transmission and indirectly to ensure firms short-term financing needs, the Eurosystem effectively bought for the first time corporate commercial paper (CP) market in March 2020, as part of the Pandemic Emergency Purchase Programme (PEPP).Using a difference-in-differences approach that exploits the PEPP eligibility criteria, our findings suggest that the program triggered a shift in the debt composition of eligible firms. Maturity at issuance increased on average by 42 days for eligible issuers, which contributed to a reduction in rollover risk. This asset purchase program was effective in easing financing conditions, which translated into a compression of yields between 8 and 11 basis points for eligible firms. Eligible issuances increased but we do not find that the PEPP fostered issuance at the aggregate level. For issuers whose debt was mainly held by money market funds prior to the crisis, we found that the effect on maturity is more contained, indicating that firms investor sector matters.

Keywords: Commercial Paper; Pandemic Emergency Purchase Programme; Eurosystem; Debt Structure; Money Market Funds (search for similar items in EconPapers)
JEL-codes: E52 E58 G01 G12 G20 G23 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2024
New Economics Papers: this item is included in nep-cba, nep-fmk and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:946

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