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The Bond Lending Channel of Monetary Policy

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  • Darmouni, O.
  • Giesecke, O.
  • Rodnyansky, R.

Abstract

The share of firms’ borrowing from bond markets has been rising globally, and notably in the Eurozone. How does debt structure affect the transmission of monetary policy? We present a high-frequency framework that combines identified monetary shocks with a cross-sectional firm-level stock price reaction. Firms with more bonds are disproportionately affected by surprise monetary actions relative to other firms in the Eurozone. This finding stands in contrast to the predictions of a standard bank lending channel and points toward bond financing not being a frictionless "spare tire."

Suggested Citation

  • Darmouni, O. & Giesecke, O. & Rodnyansky, R., 2020. "The Bond Lending Channel of Monetary Policy," Cambridge Working Papers in Economics 2049, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2049
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    Cited by:

    1. Stéphane Lhuissier & Urszula Szczerbowicz, 2022. "Monetary Policy and Corporate Debt Structure," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(3), pages 497-515, June.
    2. Manthos D Delis & Sizhe Hong & Nikos Paltalidis & Dennis Philip, 2022. "Forward Guidance and Corporate Lending [Measuring euro area monetary policy]," Review of Finance, European Finance Association, vol. 26(4), pages 899-935.
    3. Holm-Hadulla, Fédéric & Thürwächter, Claire, 2021. "Heterogeneity in corporate debt structures and the transmission of monetary policy," European Economic Review, Elsevier, vol. 136(C).
    4. Deng, Minjie & Fang, Min, 2022. "Debt maturity heterogeneity and investment responses to monetary policy," European Economic Review, Elsevier, vol. 144(C).
    5. Bruno Albuquerque, 2021. "Corporate debt booms, financial constraints, and the investment nexus," CeBER Working Papers 2021-08, Centre for Business and Economics Research (CeBER), University of Coimbra.

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    More about this item

    Keywords

    Monetary policy; corporate bonds; banking relationships; corporate finance; financial distress;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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