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Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity

Ambrogio Cesa-Bianchi ()

No 14426, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We show that credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a unique panel of corporate bonds matched with balance sheet data for US non-financial firms, we document that firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage. A large fraction of this increase is due to a component of credit spreads that is in excess of firms' expected default -- the excess bond premium. Consistent with the spreads response, we also document that high-leverage firms experience a sharper contraction in debt and investment than low-leverage firms. Our results provide evidence that balance sheet effects are crucial for understanding the transmission mechanism of monetary policy.

Keywords: Credit channel; credit spreads; event study; Excess Bond Premium; financial accelerator; Heterogeneity; identification; monetary policy (search for similar items in EconPapers)
JEL-codes: E44 F44 G15 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-mac and nep-mon
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Working Paper: Crossing the credit channel: credit spreads and firm heterogeneity (2020) Downloads
Working Paper: Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity (2020) Downloads
Working Paper: Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity (2020) Downloads
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