Central Banks’ Corporate Bond Purchases: Impact and Channels
Saturday, Jan. 5, 2019 8:00 AM - 10:00 AM
- Chair: Egon Zakrajsek, Federal Reserve Board
Making Room for the Needy: The Credit-Reallocation Effects of the ECB’s Corporate QE
AbstractWe analyse how the ECB’s purchases of corporate bonds under its Corporate Sector Purchase Programme (CSPP) affected the financing of Spanish firms. We first document that the announcement of the CSPP in March 2016 raised the firms’ propensity to issue bonds. The flipside was a drop in the demand for bank loans by bond issuers. Around 75% of the drop in loans previously given to debt issuers was redirected to other smaller non-bond issuing firms, which led them to raise investment. We document that although the ECB’s Targeted Longer Term Refinancing Operations (TLTRO) did not cause the previous reallocation of credit, they contributed to amplify the effect of the CSPP.
The Capital Structure Channel of Monetary Policy
AbstractWe 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.
The Impact of QE on Liquidity: Evidence from the UK Corporate Bond Purchase Scheme
AbstractIn August 2016, the Bank of England (BoE) announced a Corporate Bond Purchase Scheme (CBPS) to purchase up to £10bn of sterling corporate bonds. To investigate the impact of these purchases on liquidity, we create a novel dataset that combines transaction-level data from the secondary corporate bond market with proprietary offer-level data from the CBPS auctions. Identifying the impact of central bank asset purchases on liquidity is potentially impacted by reverse causality, because liquidity considerations might impact purchases. But the offer-level data allow us to construct proxy measures for the BoE's demand for bonds and auction participants' supply of bonds, meaning that we can control for the impact of liquidity on purchases. Across a range of liquidity measures, we find that CBPS purchases improved the liquidity of purchased bonds.
- E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E4 - Money and Interest Rates