IMF Working Papers

Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity

By Gareth Anderson, Ambrogio Cesa-Bianchi

December 4, 2020

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Gareth Anderson, and Ambrogio Cesa-Bianchi. Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity, (USA: International Monetary Fund, 2020) accessed September 19, 2024

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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

Publication Details

  • Pages:

    67

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2020/267

  • Stock No:

    WPIEA2020267

  • ISBN:

    9781513563336

  • ISSN:

    1018-5941