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Heterogeneity in corporate debt structures and the transmission of monetary policy

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  • Holm-Hadulla, Fédéric
  • Thürwächter, Claire

Abstract

We study how differences in the aggregate structure of corporate debt affect the transmission of monetary policy in a panel of euro area countries. We find that standard policy tightening shocks raise the cost of loans relative to corporate bonds. In economies with a high share of bond finance, the resultant rise in the overall cost of credit is less pronounced as a smaller portion of corporate debt is remunerated at the loan rate and firms further expand their reliance on bonds. In economies with a low share of bond finance, the rise in the cost of credit is reinforced by a shift in the composition of debt towards bank loans. As a consequence, a higher bond share goes along with a weaker transmission of short-term policy rate shocks to real activity. By contrast, the real effects of monetary policy shocks to longer-term yields strengthen with the share of bond finance in the economy. JEL Classification: E44, E52, G21, G23

Suggested Citation

  • Holm-Hadulla, Fédéric & Thürwächter, Claire, 2020. "Heterogeneity in corporate debt structures and the transmission of monetary policy," Working Paper Series 2402, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20202402
    Note: 1624014
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    More about this item

    Keywords

    bank lending; corporate bonds; firm financing structure; high-frequency identification; local projections;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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