NDLI: The Bond Lending Channel of Monetary Policy

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The Bond Lending Channel of Monetary Policy

Content Provider	Scilit
Author	Darmouni, Olivier Giesecke, Oliver Rodnyansky, Alexander
Copyright Year	2019
Description	Journal: SSRN Electronic Journal An increasing share of firms' borrowing occurs through bond markets. We present high-frequency evidence from the Eurozone that bond-reliant firms are more responsive to monetary shocks: in contrast to standard bank lending channel predictions, unexpected ECB policy changes affect their stock prices by more, even conditional on total debt and industry fixed-effects. We develop an organizing framework to decompose the stock price, credit risk and investment response of large firms. We emphasize the role of corporate liquidity management: firms react to rate hikes by being prudent in good times, reducing investment in favor of hoarding liquid assets. Since bond financing is less flexible in bad times than relationship banking, this effect can rationalize why the mix of bank and bond financing matters for monetary transmission. A mitigating force is that bonds generally have longer duration and lower interest-rate pass-through relative to loans. Our findings suggest that the recent global growth in bond debt following quantitative easing could interact with conventional interest rate policy going forward.
Related Links	https://mpra.ub.uni-muenchen.de/95141/1/MPRA_paper_95141.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3419235
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.3419235
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2019-07-13
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal Monetary Policy Debt Structure Bank Loans Corporate Bonds
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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