Staff Working Paper No. 1,157
By Eduardo Maqui, Márcia Silva-Pereira and Nicholas Vause
This paper studies how bond financing conditions affect economic activity in the United Kingdom, both in aggregate and across firms. At the aggregate level, we show that our proxy for bond financing conditions – the excess bond premium (EBP) – outperforms traditional business cycle indicators in predicting macroeconomic outcomes. EBP shocks have economically significant effects, with investment – especially in capital-intensive assets and industries – being more strongly affected. At the firm level, we show that highly leveraged and bond-reliant firms are particularly exposed to such shocks to market-based credit conditions, providing novel evidence on the financial accelerator.
Bond financing conditions, economic activity and the financial accelerator
