Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity
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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.
Series:
Working Paper No. 2020/267
Subject:
Economic sectors Financial crises
Frequency:
regular
English
Publication Date:
December 4, 2020
ISBN/ISSN:
9781513563336/1018-5941
Stock No:
WPIEA2020267
Pages:
67
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