Unconventional monetary policies and the corporate bond market

Massimo Guidolin, Alexei Orlov and Manuela Pedio ()

Finance Research Letters, 2014, vol. 11, issue 3, 203-212

Abstract: The paper uses a reduced-form vector autoregressive framework to study the effects of quantitative easing and operation “twist”, as well as a conventional monetary expansion, on corporate bond yields and spreads. We construct rating- and maturity-based weekly bond portfolios using TRACE and simulate monetary policies as shocks to the Treasury yield curve. We find that none of the policies can persistently lower corporate spreads, and that operation twist is the only policy capable of lowering corporate yields. This latter finding can be accounted for by the operation twist’s ability to keep the monetary base constant and, therefore, to flatten the riskless yield curve without generating inflationary expectations.

Keywords: Unconventional monetary policy; Corporate bonds; Term structure of Treasury yields; Vector autoregression (search for similar items in EconPapers)
JEL-codes: C32 E43 E52 G12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:11:y:2014:i:3:p:203-212

DOI: 10.1016/j.frl.2014.04.003

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