Credit Disintermediation and Monetary Policy

Since the early 1990s, the share of loans in total debt of US firms appears to have declined. This paper explores the implications of this trend toward “disintermediation” for the transmission of monetary policy shocks. Empirically, investment among firms with high loan shares is significantly more...

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Bibliographic Details
Published in:IMF economic review 2021-04, Vol.69 (1), p.23-89
Main Author: Crouzet, Nicolas
Format: Article
Language:English
Subjects:
Analysis
Bank loans
Banking
Banks (Finance)
Bonds
Capital Markets
Companies
Credit policy
Debt
Economic aspects
Economic Policy
Economics
Economics and Finance
Forecasts and trends
International Economics
Investments
Loans
Macroeconomics/Monetary Economics//Financial Economics
Medium term notes
Monetary policy
Research Article
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Summary:Since the early 1990s, the share of loans in total debt of US firms appears to have declined. This paper explores the implications of this trend toward “disintermediation” for the transmission of monetary policy shocks. Empirically, investment among firms with high loan shares is significantly more responsive to monetary policy shocks. Moreover, this pass-through has declined since the early 1990s, when disintermediation started. A model where firms choose debt structure by trading off the flexibility of loans against the lower cost of bonds can account for the higher sensitivity of more bank-dependent firms to monetary shocks. In this model, disintermediation also leads to a decline in the overall pass-through of monetary shocks to investment.
ISSN:2041-4161
2041-417X
DOI:10.1057/s41308-020-00131-3