A Capital Structure Channel of Monetary Policy

Benjamin Grosse-Rueschkamp, Sascha Steffen, Daniel Streitz

Research output: Contribution to journalJournal articleResearchpeer-review

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.
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.
LanguageEnglish
JournalJournal of Financial Economics
Volume133
Issue number2
Pages357-378
Number of pages22
ISSN0304-405X
DOIs
StatePublished - 2019

Keywords

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

Cite this

Grosse-Rueschkamp, Benjamin ; Steffen, Sascha ; Streitz, Daniel. / A Capital Structure Channel of Monetary Policy. In: Journal of Financial Economics. 2019 ; Vol. 133, No. 2. pp. 357-378
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Grosse-Rueschkamp, B, Steffen, S & Streitz, D 2019, 'A Capital Structure Channel of Monetary Policy' Journal of Financial Economics, vol. 133, no. 2, pp. 357-378. DOI: 10.1016/j.jfineco.2019.03.006

A Capital Structure Channel of Monetary Policy. / Grosse-Rueschkamp, Benjamin; Steffen, Sascha; Streitz, Daniel.

In: Journal of Financial Economics, Vol. 133, No. 2, 2019, p. 357-378.

Research output: Contribution to journalJournal articleResearchpeer-review

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Grosse-Rueschkamp B, Steffen S, Streitz D. A Capital Structure Channel of Monetary Policy. Journal of Financial Economics. 2019;133(2):357-378. Available from, DOI: 10.1016/j.jfineco.2019.03.006