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Market Effects of Central Bank Credit Markets Support Programs in Europe

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Abstract

Using responses of credit default swap indexes to ECB monetary policy announcements, we isolate a novel credit policy component of monetary policy surprises. We examine how such unconventional monetary policy surprises affect investor perceptions of credit risk and the functioning of primary corporate debt markets. Favorable credit surprises cause declines in uncertainty about credit risk and suggest a more stable outlook on its dynamics over the following months. Both net and gross corporate bond issuance increase as a result of favorable credit surprises, with the largest response in investment grade issuance. We argue that this provides evidence for the efficacy of a local channel of unconventional monetary policy.

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  • Yuriy Kitsul & Oleg Sokolinskiy & Jonathan H. Wright, 2022. "Market Effects of Central Bank Credit Markets Support Programs in Europe," International Finance Discussion Papers 1357, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1357
    DOI: 10.17016/IFDP.2022.1357
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    More about this item

    Keywords

    CDS; Central banks; Credit derivatives; Credit programs; Debt issuance; Uncertainty;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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