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Heterogeneity in corporate debt structures and the transmission of monetary policy

Fédéric Holm-Hadulla and Claire Thürwächter

No 2402, Working Paper Series from European Central Bank

Abstract: We study how differences in the aggregate structure of corporate debt financing affect the transmission of monetary policy. Using high-frequency financial market data to identify monetary policy shocks in a panel of euro area countries, we find that: bond finance dampens the overall response of firm credit to monetary policy shocks in economies with a high initial share of bond- relative to bank-based finance; this effect weakens, and may even reverse, in economies with a low share of bond financing; and the dampening effect of a larger bond financing share also attenuates the ultimate impact of monetary policy on economic activity. These findings point to corporate bond markets acting as a “spare tire” in situations when bank lending contracts. JEL Classification: E44, E52, G21, G23

Keywords: bank lending; corporate bonds; firm financing structure; high-frequency identification; local projections (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Note: 1624014
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202402

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