TY - JOUR
T1 - Does the Cost of Private Debt Respond to Monetary Policy? Heteroskedasticity‐Based Identification in a Model with Regimes
AU - Guidolin, Massimo
AU - Pedio, Manuela
AU - Massagli, Valentina
PY - 2021/4/21
Y1 - 2021/4/21
N2 - We investigate the effects of the Federal Reserve's quantitative easing and maturity extension programs on the yields of US dollar-denominated corporate bonds using a multiple-regime heteroskedasticity-based VAR identification approach. Impulse response functions suggest that a traditional, rate-based expansionary policy may lead to an increase in yields while quantitative easing is linked to a general and persistent decrease in yields, particularly for long-term bonds. The responses generated by the maturity extension program are significant and of larger magnitude. A decomposition shows that the unconventional programs reduce the cost of private debt primarily through a reduction in risk premia that cannot be entirely accounted for by a reduction in corporate default risk.
AB - We investigate the effects of the Federal Reserve's quantitative easing and maturity extension programs on the yields of US dollar-denominated corporate bonds using a multiple-regime heteroskedasticity-based VAR identification approach. Impulse response functions suggest that a traditional, rate-based expansionary policy may lead to an increase in yields while quantitative easing is linked to a general and persistent decrease in yields, particularly for long-term bonds. The responses generated by the maturity extension program are significant and of larger magnitude. A decomposition shows that the unconventional programs reduce the cost of private debt primarily through a reduction in risk premia that cannot be entirely accounted for by a reduction in corporate default risk.
U2 - 10.1080/1351847X.2021.1917442
DO - 10.1080/1351847X.2021.1917442
M3 - Article (Academic Journal)
SN - 1351-847X
VL - 27
SP - 1804
EP - 1833
JO - European Journal of Finance
JF - European Journal of Finance
IS - 18
ER -