Forward Guidance and Corporate Lending

Manthos Delis (), Sizhe Hong, Nikos Paltalidis and Dennis Philip

MPRA Paper from University Library of Munich, Germany

Abstract: We suggest that forward guidance, via “binding” the central bank’s actions and creating associated expectations, fundamentally affects bank-lending decisions independently of other forms of monetary policy. To test this hypothesis, we build a forward guidance measure based on the language used in the Federal Open Market Committee meetings and match this measure with syndicated loans. Our results show that expansionary forward guidance decreases corporate loan spreads and that this effect is stronger for well-capitalized banks lending to riskier firms. Moreover, banks more easily initiate new lending relationships with lower spreads, and the loan syndicates are less concentrated.

Keywords: Forward guidance; Monetary policy transmission; Bank lending; Corporate loans; Loan spreads; Syndicate structure; Bank-firm relationships (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 G21 (search for similar items in EconPapers)
Date: 2020-01-15
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:98159

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