Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity
Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity
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Volume/Issue:
Volume 2020
Issue 267
Publication date: December 2020
ISBN: 9781513563336
$18.00
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Topics covered in this book
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Economics- Macroeconomics , International - Economics , monetary policy , heterogeneity , credit spreads , excess bond premium , credit channel , financial accelerator , event study
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.
