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Monetary policy and corporate bond yield spreads

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  • David Beckworth
  • Kenneth Moon
  • J. Holland Toles

Abstract

Firm characteristics, economic conditions and policy regimes are the key determinants that most researchers have used to explain corporate bond yield spreads. In this article, we examine whether monetary policy shocks are also important determinants given their ability to affect default risk, risk aversion and liquidity premiums. Using a Vector Autoregression (VAR) with long-run monetary neutrality, we find that monetary policy shocks do, in fact, account for a large portion of the variation in corporate bond yield spreads.

Suggested Citation

  • David Beckworth & Kenneth Moon & J. Holland Toles, 2010. "Monetary policy and corporate bond yield spreads," Applied Economics Letters, Taylor & Francis Journals, vol. 17(12), pages 1139-1144.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:12:p:1139-1144
    DOI: 10.1080/00036840902845368
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    References listed on IDEAS

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    5. Jean Boivin & Marc P. Giannoni, 2006. "Has Monetary Policy Become More Effective?," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 445-462, August.
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    8. Lastrapes, W. D., 1998. "International evidence on equity prices, interest rates and money," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 377-406, June.
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    Cited by:

    1. Chi Hyun Kim & Lars Other, 2019. "The Short-Run Effect of Monetary Policy Shocks on Credit Risk: An Analysis of the Euro Area," Discussion Papers of DIW Berlin 1781, DIW Berlin, German Institute for Economic Research.
    2. Badye Essid & Tolga Cenesizoglu, 2010. "The Effect of Monetary Policy on Credit Spreads," 2010 Meeting Papers 1139, Society for Economic Dynamics.
    3. Ballestra, Luca Vincenzo & Pacelli, Graziella, 2014. "Valuing risky debt: A new model combining structural information with the reduced-form approach," Insurance: Mathematics and Economics, Elsevier, vol. 55(C), pages 261-271.
    4. Korangi, Kamesh & Mues, Christophe & Bravo, Cristián, 2023. "A transformer-based model for default prediction in mid-cap corporate markets," European Journal of Operational Research, Elsevier, vol. 308(1), pages 306-320.
    5. Paradiso, Antonio & Rao, B. Bhaskara, 2011. "The effects of Minsky moment and stock prices on the US Taylor Rule," MPRA Paper 27840, University Library of Munich, Germany.
    6. Kamesh Korangi & Christophe Mues & Cristi'an Bravo, 2021. "A transformer-based model for default prediction in mid-cap corporate markets," Papers 2111.09902, arXiv.org, revised Apr 2023.
    7. Siamak Javadi & Ali Nejadmalayeri & Timothy L Krehbiel, 2018. "Do FOMC Actions Speak Loudly? Evidence from Corporate Bond Credit Spreads [Communication and monetary policy]," Review of Finance, European Finance Association, vol. 22(5), pages 1877-1909.

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