Do Corporate Bond Shocks Affect Commercial Bank Lending?
IMF Working Papers, August 4, 2023
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- Do Corporate Bond Shocks Affect Commercial Bank Lending?
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Bibliographic details
- Authors: Mario Catalan, Alexander W. Hoffmaister
- Published: August 4, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400251368.001
Summary and main finding
- Purpose: Understand how corporate bond market disruptions are transmitted to the rest of the financial system and to gauge systemic financial risk and design policy responses.
- Main finding: Corporate bond market shocks can reduce commercial bank lending activity by tightening loan supply.
- Implication: Policies designed to contain stress in the corporate bond market can mitigate systemic risk by limiting contagion to the commercial banking sector.
Methodology
- Model: Extension of the vector autoregression model of Gilchrist and Zakrajšek (2012) to explicitly account for the role of commercial banks in the transmission of corporate bond credit spread shocks.
- Focus: Transmission of corporate bond credit spread shocks to commercial bank lending through loan supply channels.
Policy recommendations and implications
- Contain stress in the corporate bond market to mitigate systemic risk.
- Limiting corporate bond market disruptions can reduce contagion to commercial banks and preserve bank lending activity.
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- Working Paper