Quantitative Easing and Credit Rating Agencies
IMF Working Papers, June 3, 2022
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Bibliographic details
- Authors: Nordine Abidi, Matteo Falagiarda, Ixart Miquel-Flores
- Published: June 3, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400211980.001
Summary
- This paper investigates the behaviour of credit rating agencies using a natural experiment in monetary policy.
- The authors exploit the corporate QE of the Eurosystem and its rating-based specific design which generates exogenous variation in the probability for a bond of becoming eligible for outright purchases.
- After the launch of the policy, rating activity was concentrated precisely on the territory where the incentives of market participants are expected to be more sensitive to the policy design.
- The findings contribute to assessing the consequences of the explicit reliance on CRAs ratings by central banks when designing monetary policy.
- The findings also support the Covid-19 monetary stimulus, in particular the waiver of private credit rating eligibility requirements applied to recently downgraded issuers.
Key findings and evidence
- Rating activity increased in areas where the Eurosystem corporate QE design made eligibility for outright purchases more likely.
- The policy’s rating-based design provided exogenous variation in eligibility probability for bonds, serving as a natural experiment to observe CRA behaviour.
- Concentration of rating activity occurred "precisely on the territory" where market participant incentives were most sensitive to the policy design (language preserved from source).
Policy implications and recommendations
- Results inform the assessment of risks and consequences when central banks explicitly rely on CRAs ratings in monetary policy design.
- Findings support policy measures taken during the Covid-19 monetary stimulus, specifically:
- The waiver of private credit rating eligibility requirements applied to recently downgraded issuers.
Publication and metadata
- Authors: Nordine Abidi, Matteo Falagiarda, Ixart Miquel-Flores
- Publication date: June 3, 2022
- Series: Working Paper No. 2022/113
- Issue: 113
- Volume: 2022
- Pages: 93
- DOI: https://doi.org/10.5089/9798400211980.001
- ISBN: 9798400211980
- ISSN: 1018-5941
- Subjects: Bond ratings; Bonds; Corporate bonds; Credit ratings; Financial institutions; Monetary policy; Money; Unconventional monetary policies
- Keywords (as listed): behaviour of credit rating agencies, Bond ratings, Bonds, Corporate bonds, Credit Rating Agencies, Credit ratings, eligibility frontier, eligibility requirement, Global, Middle East and Central Asia, Monetary Policy, Quantitative Easing, rating activity, rating Agency Disclaimer, Unconventional monetary policies
IMF Working Paper: "Quantitative Easing and Credit Rating Agencies", Nordine Abidi, Matteo Falagiarda, and Ixart Miquel-Flores, Working Paper No. 2022/113, June 3, 2022.
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