Quantitative Easing and Credit Rating Agencies

By Nordine Abidi, Matteo Falagiarda, Ixart Miquel-Flores

June 3, 2022

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Nordine Abidi, Matteo Falagiarda, and Ixart Miquel-Flores. Quantitative Easing and Credit Rating Agencies, (USA: International Monetary Fund, 2022) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper investigates the behaviour of credit rating agencies using a natural experiment in monetary policy. We exploit the corporate QE of the Eurosystem and its rating-based specific design which generates exogenous variation in the probability for a bond of becoming eligible for outright purchases. We show that after the launch of the policy, rating activity was concentrated precisely on the territory where the incentives of market participants are expected to be more sensitive to the policy design. Our findings contribute to better assessing the consequences of the explicit reliance on CRAs ratings by central banks when designing monetary policy. They also support the Covid-19 monetary stimulus, and in particular the waiver of private credit rating eligibility requirements applied to recently downgraded issuers.

Subject: Bond ratings, Bonds, Corporate bonds, Credit ratings, Financial institutions, Monetary policy, Money, Unconventional monetary policies

Keywords: Behaviour of credit rating agencies, Bond ratings, Bonds, Corporate bonds, Credit Rating Agencies, Credit ratings, Eligibility frontier, Eligibility requirement, Global, Middle East and Central Asia, Monetary Policy, Quantitative Easing, Rating activity, Rating Agency Disclaimer, Unconventional monetary policies

Publication Details

Pages:

93
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/113
Stock No:

WPIEA2022113
ISBN:

9798400211980
ISSN:

1018-5941

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