Discussion Paper Details

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Title: The Bond Lending Channel of Monetary Policy

Author(s): Olivier Darmouni, Oliver Giesecke and Alexander Rodnyansky

Publication Date: April 2020

Keyword(s): Banking relationships, corporate bonds, Corporate Finance, financial distress and monetary policy

Programme Area(s): Financial Economics and Monetary Economics and Fluctuations

Abstract: The share of firms' borrowing from bond markets has been rising globally, and notably in the Eurozone. How does debt structure affect the transmission of monetary policy? We present a high-frequency framework that combines identified monetary shocks with a cross-sectional firm-level stock price reaction. Firms with more bonds are disproportionately affected by surprise monetary actions relative to other firms in the Eurozone. This finding stands in contrast to the predictions of a standard bank lending channel and points toward bond financing not being a frictionless "spare tire."

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Bibliographic Reference

Darmouni, O, Giesecke, O and Rodnyansky, A. 2020. 'The Bond Lending Channel of Monetary Policy'. London, Centre for Economic Policy Research.