The Effect of Monetary Policy on Credit Spreads

Cenesizoglu, Tolga; Essid, Badye

doi:10.1111/j.1475-6803.2012.01329.x

Cited by 24 publications

(7 citation statements)

References 34 publications

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“…However, the R 2 value indicates that only 15.4% of the variance of the regression model is explained by government spending. 31 A reduction in central bank interest rates is a proactive macroeconomic policy because it facilitates lending activities by lowering the cost of borrowing, which reduces volatility in financial markets (Cenesizoglu & Essid, 2012). In contrast, the regression model for France indicates that a one-unit increase in government spending reduces GDP changes by 0.292.…”

Section: Discussionmentioning

confidence: 99%

“…Furthermore, in line with Cenesizoglu and Essid (2012), both a VAR analysis and a linear regression analysis will be conducted to evaluate the effects of liquidity provision on credit spreads and the efficacy of central bank interest rates in mitigating financial market disequilibria. Additionally, Cenesizoglu and Essid (2012) posited that changes to credit spreads might be due to the lack of control variables.…”

Section: Evaluating Macroeconomic Policiesmentioning

confidence: 99%

“…In evaluating the effect of liquidity provision on credit spreads, both uncontrolled and controlled regressions were conducted, which allows the real effects of liquidity provision to be elucidated by accounting for other exogenous variables that may impact credit spreads (Cenesizoglu & Essid, 2012). VARs were then conducted to analyse the short-term impact of liquidity provision on credit spreads.…”

Section: The Effectiveness Of Fiscal and Monetary Policies In Resolmentioning

confidence: 99%

See 2 more Smart Citations

The efficacy of macroeconomic policies in resolving financial market disequilibria: A cross‐country analysis

2018

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This study attempts to evaluate the efficacy of macroeconomic policies in resolving financial market disequilibria and to elucidate the influence of the political landscape and global financial integration on the policymaking process. The current investigation examines three macroeconomic policies: (a) government spending, (b) liquidity provision, and (c) central bank interest rates by analysing 21 countries around the globe. The results suggest that government spending is a suboptimal macroeconomic policy for mitigating imbalances in financial markets, as it may have destabilizing effects. Liquidity provision was found to be ineffective in facilitating financial market stability whereas the adjustment of interest rates was found to be a viable tool for mitigating financial market imbalances. Therefore, an appropriate policy framework would comprise the following: prudent government spending, conditional liquidity provision, and a reduction in interest rates following the development of financial market disequilibria. Furthermore, this study found strong evidence against the notion that political orientations influence policy frameworks, which were designed to redress financial market disequilibria. This study also found that global financial integration does not influence the policymaking process.

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Section: Discussionmentioning

confidence: 99%

Section: Evaluating Macroeconomic Policiesmentioning

confidence: 99%

Section: The Effectiveness Of Fiscal and Monetary Policies In Resolmentioning

confidence: 99%

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The efficacy of macroeconomic policies in resolving financial market disequilibria: A cross‐country analysis

2018

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“…; Huang and Huang ; Lando and Skodeberg ; Dionne et al. ; MDF ; Cenesizoglu and Essid ). This phenomenon is now labelled as the Credit Risk Puzzle.…”

Section: Literature Reviewmentioning

confidence: 99%

Default and liquidity regimes in the bond market during the 2002–2012 period

Dionne

Chun

2013

Canadian J of Economics

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Using a real‐time random regime shift technique, we identify and discuss two different regimes in the dynamics of credit spreads during 2002–2012: a liquidity regime and a default regime. Both regimes contribute to the patterns observed in credit spreads. The liquidity regime seems to explain the predictive power of credit risk on the 2007–2009 NBER recession, whereas the default regime drives the persistence of credit spreads over the same recession. Our results complement the recent dynamic structural models as well as monetary and credit supply effects models by empirically supporting two important patterns in credit spreads: the persistence and the predictive ability toward economic downturns.

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“…The study most closely related to this study is Cenesizoglu and Essid (, CE hereafter). Using monthly data, they show that credit spreads widen following an unexpected monetary tightening during bad times.…”

Section: Introductionmentioning

confidence: 99%

Credit Spread Changes and Monetary Policy Surprises: The Evidence from the Fed Funds Futures Market

Zhu

2012

Journal of Futures Markets

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This study analyzes the impact of monetary policy actions on credit spreads of various rating categories and maturities, using federal funds futures to distinguish between anticipated and unanticipated changes in the federal funds rate. Two proxies for monetary policy shocks are the surprise change to the current federal funds target rate (target surprise) and the shock to the future path of policy (path surprise). Although credit spreads consistently respond to the target surprises, they rarely respond to the path surprises after controlling for the effect of the target surprises. The way that credit spreads respond to the target surprises changes across the maturities of corporate bonds. In addition, the empirical analysis indicates that the effect of the target surprises on credit spreads is more significant in economic recessions than in economic booms.

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The Effect of Monetary Policy on Credit Spreads

Cited by 24 publications

References 34 publications

The efficacy of macroeconomic policies in resolving financial market disequilibria: A cross‐country analysis

The efficacy of macroeconomic policies in resolving financial market disequilibria: A cross‐country analysis

Default and liquidity regimes in the bond market during the 2002–2012 period

Credit Spread Changes and Monetary Policy Surprises: The Evidence from the Fed Funds Futures Market

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