Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity
December 4, 2020
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Summary
Credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a panel of corporate bonds matched with balance sheet data for U.S. 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. Our results suggest that frictions in the financial intermediation sector play a crucial role in shaping the transmission mechanism of monetary policy.
Subject: Economic sectors, Financial crises
Keywords: credit channel, credit spreads, event study, excess bond premium, financial accelerator, heterogeneity, monetary policy
Pages:
67
Volume:
2020
DOI:
Issue:
267
Series:
Working Paper No. 2020/267
Stock No:
WPIEA2020267
ISBN:
9781513563336
ISSN:
1018-5941
