Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/190232 
Year of Publication: 
2018
Series/Report no.: 
ADBI Working Paper No. 811
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
In this paper, we investigate to what extent sovereign stress and banking stress have contributed to the increase in the level and in the heterogeneity of non-financial firms' financing costs in the Euro area during the European debt crisis and how both have affected the monetary transmission mechanism. Employing a large firm-level data set containing 2 million observations we are able to identify the effect of government bond yield spreads (sovereign stress) and the share of non-performing loans (banking stress) on firms' financing costs in a panel model by assuming that idiosyncratic shocks to individual firms are uncorrelated with country-specific variables. We find that the two sources of stress have increased firms' financing costs controlling for country and firm-specific factors. Moreover, we estimate both to have significantly impaired the monetary transmission mechanism.
Subjects: 
Banking stress
firms' financing conditions
government bond yields
interest rate channel
monetary policy transmission
sovereign stress
JEL: 
E43
E44
E52
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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