Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity

Author/Editor:

Gareth Anderson ; Ambrogio Cesa-Bianchi

Publication Date:

December 4, 2020

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Series:

Working Paper No. 2020/267

Frequency:

regular

English

Publication Date:

December 4, 2020

ISBN/ISSN:

9781513563336/1018-5941

Stock No:

WPIEA2020267

Format:

Paper

Pages:

67

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