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A capital structure channel of monetary policy

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  • Grosse-Rueschkamp, Benjamin
  • Steffen, Sascha
  • Streitz, Daniel

Abstract

We study the transmission channels from central banks’ quantitative easing programs via the banking sector when central banks start purchasing corporate bonds. We find evidence consistent with a “capital structure channel” of monetary policy. The announcement of central bank purchases reduces the bond yields of firms whose bonds are eligible for central bank purchases. These firms substitute bank term loans with bond debt, thereby relaxing banks’ lending constraints: banks with low tier-1 ratios and high nonperforming loans increase lending to private (and profitable) firms, which experience a growth in investment. The credit reallocation increases banks’ risk-taking in corporate credit.

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  • Grosse-Rueschkamp, Benjamin & Steffen, Sascha & Streitz, Daniel, 2019. "A capital structure channel of monetary policy," Journal of Financial Economics, Elsevier, vol. 133(2), pages 357-378.
    • Handle: RePEc:eee:jfinec:v:133:y:2019:i:2:p:357-378
    DOI: 10.1016/j.jfineco.2019.03.006
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    Cited by:

    1. Betz, Frank & De Santis, Roberto A., 2019. "ECB corporate QE and the loan supply to bank-dependent firms," Working Paper Series 2314, European Central Bank.

    More about this item

    Keywords

    Debt capital structure; Bond debt; Unconventional monetary policy; Quantitative easing; Real effects;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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