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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
The Impact of Unconventional Monetary Policy on Firm Financing Constraints : Evidence from the Maturity Extension Program
This paper investigates the impact of unconventional monetary policy on firm financial constraints. It focuses on the Federal Reserve’s maturity extension program (MEP), intended to lower longer-term rates and flatten the yield curve by reducing the supply of long-term government debt. Consistent with those models that emphasize bond market segmentation and limits to arbitrage, around the MEP’s announcement, stock prices rose most sharply for those firms that are more dependent on longer-term debt. These firms also issued more long-term debt during the MEP and expanded employment and investment. These responses are most pronounced for those firms that are larger and older, and hence less likely to be financially constrained. There is also evidence of “reach for yield” behavior among some institutional investors, as the demand for riskier corporate debt also rose during the MEP. Our results suggest that unconventional monetary policy might have helped to relax financial constraints for some types of firms in part by inducing gap-filling behavior and affecting the pricing of risk in the bond market.
Cite this item
Nathan Foley-Fisher & Rodney Ramcharan & Edison Yu, The Impact of Unconventional Monetary Policy on Firm Financing Constraints : Evidence from the Maturity Extension Program, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2016-025, Feb 2016.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Keywords: unconventional monetary policy ; firm‐financial constraints ; bond markets
This item with handle RePEc:fip:fedgfe:2016-25
is also listed on EconPapers
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