Working Paper: CEPR ID: DP14426
Authors: Ambrogio Cesabianchi; Gareth Anderson
Abstract: Firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage in response to a monetary policy tightening. A large fraction of this increase is due to a component of credit spreads that is in excess of firms' expected default risk. A stylized heterogeneous firm model with default risk, financially constrained intermediaries, and segmented financial markets is able to account for these facts. Our findings imply that financial intermediaries play an important role in shaping the transmission of monetary policy to firm-level outcomes.
Keywords: Monetary Policy; Heterogeneity; Credit Spreads; Excess Bond Premium; Credit Channel; Financial Accelerator
JEL Codes: E44; F44; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary policy surprise (E49) | Credit spreads (G12) |
| Monetary policy surprise (E49) | Credit spreads (high-leverage firms) (G32) |
| Monetary policy tightening (E52) | Excess bond premium (G12) |
| Credit spreads (G12) | Expected default risk (G33) |
| Monetary policy tightening (E52) | Credit spreads (high-leverage firms) (G32) |