I have read about Quantitative Easing (QE) and its attempt to bring back inflation. In this, central banks create money, then give it to other banks that buy government bonds, corporate bonds, and assets, in order to increase prices.

I believe there are some drawbacks with this, such as perhaps an unfair preference of corporate bonds of large firms compared to SMEs in this "trickle-down" money proliferation, but I could not find evidence or numbers on this.

Regarding large firms whose corporate bonds are bought up, I am wondering if there are any measurable effects on the cost of corporate financing. QE is happening since 2009, but I could not find numbers regarding its actual effects. Also, there should be some competition between large firms as to which one's bonds are bought with the new money.

Are you aware of empirical results regarding the changing cost of capital and competition between firms for fiat money due to QE?

  • $\begingroup$ It is an interesting and important question. The BoE announced corporate bond purchases in August 2016 (to start in september) and the ECB started buying them on 8 June 2016. The Fed does not do them (so far). So there may not be much data available on the effects yet, IMO. $\endgroup$
    – nbbo2
    Oct 18, 2016 at 12:13
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    $\begingroup$ So before, it was mostly government bonds, right? - Is there any solid modeling or other literature on the hypothetical/predicted effects of this new type of QE? $\endgroup$
    – Marie. P.
    Oct 18, 2016 at 12:16

1 Answer 1


In the literature, this is called capital structure transmission channel of monetary policy. A recent paper, addresses this question$^\star$.As Central Bank announces purchase of corporate bonds, firms of interest exhibit lower bond yields (40bps one year after announcement) and shift to bond market, relatively to bank loans. Note that firms not included in the program maintain the same bond yields. Eligible firms increase bond leverage by 13%, substituting partially bank debt. This increases bank lending to private firms (which are more financially constrained/opaque), previously possibly credit rationed. Banks relax their credit standards and increase their risk taking.

$^ \star$Grosse-Rueschkamp, Benjamin and Steffen, Sascha and Streitz, Daniel, A Capital Structure Channel of Monetary Policy (September 18, 2018). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2988158 or http://dx.doi.org/10.2139/ssrn.2988158


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