How new Fed corporate bond programs cushioned the Covid-19 recession

Michael D. Bordo and John Duca

Journal of Banking & Finance, 2022, vol. 136, issue C

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 corporate bonds rated as investment grade before the Covid pandemic. We assess the effectiveness of this program using long sample periods, spanning the Great Depression through the Great and Covid Recessions. Findings indicate that the announcement of corporate bond backstop facilities helped stop risk premia from rising further than they had by late-March 2020. In doing so, these backstop facilities 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.

Keywords: Financial crises; Federal Reserve; Credit easing; Lender of last resort; Corporate bonds; Corporate bond facility (search for similar items in EconPapers)
JEL-codes: E51 E53 G12 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:136:y:2022:i:c:s0378426622000139

DOI: 10.1016/j.jbankfin.2022.106413

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