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Claire Thürwächter

7 May 2020
We study how differences in the aggregate structure of corporate debt affect the transmission of monetary policy in a panel of euro area countries. We find that standard policy tightening shocks raise the cost of loans relative to corporate bonds. In economies with a high share of bond finance, the resultant rise in the overall cost of credit is less pronounced as a smaller portion of corporate debt is remunerated at the loan rate and firms further expand their reliance on bonds. In economies with a low share of bond finance, the rise in the cost of credit is reinforced by a shift in the composition of debt towards bank loans. As a consequence, a higher bond share goes along with a weaker transmission of short-term policy rate shocks to real activity. By contrast, the real effects of monetary policy shocks to longer-term yields strengthen with the share of bond finance in the economy.
JEL Code
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, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors