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The credit channel is alive at the zero lower bound but how does it operate? Firm level evidence on the asymmetric effects of U.S. monetary policy

Uluc Aysun ()

No 2016-01, Working Papers from University of Central Florida, Department of Economics

Abstract: We calculate borrowing spreads for over 8,000 U.S. firms and investigate how these are related to the stance of monetary policy. After 2009, we observe, consistent with credit channel theory, a positive relationship between shadow federal funds rates and borrowing spreads for only firms with high borrowing spreads and low quality. Conversely, we find a negative relationship for firms (of high and low quality) with low borrowing spreads. These relationships are reversed for the period before 2008. Our results uncover the distortional effects of monetary policy. Loose monetary policy causes spreads to converge (diverge) across firms after 2009 (before 2008).

Keywords: credit channel; zero lower bound; firm-level data; shadow rates (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 G10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-mac, nep-mon and nep-net
Date: 2016-06
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