Monetary policy announcement effects on U.S. corporate credit spreads

Thumbnail Image

Files

master_Kohonen_Kaarlo_2022.pdf (1.03 MB)

URL

Journal Title

Journal ISSN

Volume Title

School of Business | Master's thesis
Unless otherwise stated, all rights belong to the author. You may download, display and print this publication for Your own personal use. Commercial use is prohibited.

Authors

Date

2022

Department

Rahoituksen laitos

Major/Subject

Mcode

Degree programme

Finance

Language

en

Pages

66+14

Series

Abstract

During the last 15 years central banks have tried to stimulate economic output with unprec-edented measures and power, but have they succeeded in facilitating private borrowing for firms? In this thesis, I study the Federal Reserve’s monetary policy announcement effects on large U.S. corporates between 2003 and 2022 through credit default swap (CDS) spreads, to see how the announced measures are reflected in private borrowing costs. The company specific CDS data provides interesting insights to announcement reaction differences between companies with varying creditworthiness, dependence on external finance, and operating industries during different monetary policy regimes. I find that the first two factors have moderate and varying effects on spread changes, while operating industry does not. By separating the monetary policy shock effect from the announcement effect, I also find that the shock effect is likely dominated by an opposite effect from Fed revealing new information on its economic outlook, causing both the spreads and underlying Treasury yields to react contrary to monetary policy transmission theories.

Description

Thesis advisor

Nyberg, Peter

Keywords

credit spreads, the Federal Reserve, monetary policy effects, credit default swaps, monetary policy shocks

Other note

Citation

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-202209115499

Collections

[gradu] Kauppakorkeakoulu / BIZ