Credit risk and the transmission of interest rate shocks

• 成果类型: Article
• 署名作者: Palazzo, Berardino; Yamarthy, Ram
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors; Office of Financial Research
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2022.06.004
• 发表日期: 2022
• 页码: 120-136
• 关键词: credit risk; CDS; monetary policy; Shock transmission; Equity returns

摘要

Using daily credit default swap (CDS) data, we find a positive relation between corporate credit risk and unexpected monetary policy shocks during FOMC announcement days. Pos-itive shocks to interest rates increase the expected loss component of CDS spreads as well as a risk premium component. However, not all firms respond in the same manner. We show that firm-level credit risk is an important driver of the monetary policy response, both in credit and equity markets, and its role is not diminished by the inclusion of other risk proxies. A stylized corporate model of monetary policy, investment, and financing ra-tionalizes our findings. Published by Elsevier B.V.