On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates

Home About Latest Browse RSS Advanced Search

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
Nathan Foley-Fisher
Rodney Ramcharan
Edison Yu
Abstract

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.


Download Full text
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.
More from this series
JEL Classification:
Subject headings:
Keywords: unconventional monetary policy ; firm‐financial constraints ; bond markets
DOI: 10.17016/FEDS.2016.025
For corrections, contact Ryan Wolfslayer ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal