Do Corporate Bond Shocks Affect Commercial Bank Lending?
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Summary:
Understanding how corporate bond market disruptions are transmitted to the rest of the financial system is essential to gauge systemic financial risk and design policy responses. In this study, we extend the vector autoregression model of Gilchrist and Zakrajšek (2012) to explicitly account for the role of commercial banks in the transmission of corporate bond credit spread shocks. We find that corporate bond market shocks can reduce commercial bank lending activity by tightening loan supply. Policies designed to contain stress in the corporate bond market can thus mitigate systemic risk by limiting contagion to the commercial banking sector.
Series:
Working Paper No. 2023/156
Subject:
Bank credit Bonds Commercial banks Corporate bonds Financial institutions Financial markets Money Securities markets
Frequency:
regular
English
Publication Date:
August 4, 2023
ISBN/ISSN:
9798400251368/1018-5941
Stock No:
WPIEA2023156
Format:
Paper
Pages:
29
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