The impact of monetary policy on corporate bonds under regime shifts
Massimo Guidolin (),
Alexei G. Orlov and
Journal of Banking & Finance, 2017, vol. 80, issue C, 176-202
We study the effects of a conventional monetary expansion, quantitative easing, and the maturity extension program on corporate bond yields using impulse response functions obtained from flexible models with regimes. Using a three-state Markov switching model with time-homogeneous vector autoregressive (VAR) coefficients that emerges from a systematic model specification search, we find that unconventional policies may have been generally expected to decrease both corporate yields and spreads. However, even though the sign of the responses is the one desired by policymakers, the size of the estimated effects depends on the assumptions regarding the decline in long-term Treasury yields caused by unconventional policies, on which considerable uncertainty remains. Further tests based on yield spreads and a variable that measures inflation expectations show that, in the crisis regime, unconventional monetary policies do not produce any perverse effects on expected inflation. These results prove robust to adopting a framework that allows VAR coefficients to break, to imposing coefficient restrictions that increase parsimony, and to a range of different ordering schemes that identify shocks in alternative ways.
Keywords: Unconventional monetary policy; Corporate bonds; Term structure of treasury yields; Impulse response functions; Markov switching vector autoregressions (search for similar items in EconPapers)
JEL-codes: G12 E43 C32 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: The Impact of Monetary Policy on Corporate Bonds under Regime Shifts (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:80:y:2017:i:c:p:176-202
Access Statistics for this article
Journal of Banking & Finance is currently edited by Ike Mathur
More articles in Journal of Banking & Finance from Elsevier
Series data maintained by Dana Niculescu ().