Discussion Paper Details

Please find the details for DP14426 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity

Author(s): Ambrogio Cesa-Bianchi

Publication Date: February 2020

Keyword(s): Credit channel, credit spreads, event study, Excess Bond Premium, financial accelerator, Heterogeneity, identification and monetary policy

Programme Area(s): Monetary Economics and Fluctuations

Abstract: We show that credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a unique panel of corporate bonds matched with balance sheet data for US 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 -- the excess bond premium. Consistent with the spreads response, we also document that high-leverage firms experience a sharper contraction in debt and investment than low-leverage firms. Our results provide evidence that balance sheet effects are crucial for understanding the transmission mechanism of monetary policy.

For full details and related downloads, please visit:

Bibliographic Reference

Cesa-Bianchi, A. 2020. 'Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity'. London, Centre for Economic Policy Research.