2022-06-02-IMF-Quantitative_Easing_and_Credit_Rating_Agencies_93页_2mb

Quantitative Easing and Credit Rating Agencies Summary

Authors: Nordine Abidi, Matteo Falagiarda, Ixart Miquel-Flores
Source: IMF Working Paper, WP/2022/113

Research Question

This paper examines how central bank policies, specifically quantitative easing (QE), influence the behavior of credit rating agencies (CRAs) and their ratings of corporate bonds. The focus is on whether the design of QE programs induces CRAs to manipulate ratings upward, potentially creating unintended economic consequences.

Methodology

The study uses a natural experiment provided by the European Central Bank's (ECB) Corporate Sector Purchase Programme (CSPP), launched in March 2016. The analysis involves tracking corporate bond ratings using a frozen dataset of over 1,700 euro-area corporate bonds from January 2015 to December 2017. Regression models, including time-series and cross-sectional controls, assess changes in credit ratings around the eligibility frontier (minimum BBB- rating). Multiple robustness checks are employed to address potential confounding factors, such as business cycles, bond characteristics, and country-level data.

Key Findings

• Rating upgrades were significantly concentrated on bonds close to, but below, the CSPP eligibility threshold (BBB- rating). This effect, termed the "credit rating channel," arises from incentives created by the QE policy, where CRAs may inflate ratings to meet central bank criteria.
• Overall, the probability of a bond becoming CSPP-eligible increased by approximately 3-4 percentage points post-QE, driven by discrete changes around the rating threshold.
• The findings suggest that central banks' explicit reliance on CRA ratings introduces unintended distortions, but the localized nature of these changes minimizes broader macroeconomic impacts.

Conclusion

The paper highlights that QE programs can subtly influence CRA behavior through design features like rating thresholds, potentially easing credit constraints. However, these effects are confined largely to bond-rating adjustments and are unlikely to cause systemic financial stability issues. Central banks should consider these incentives when designing unconventional monetary policies, especially during crises like the COVID-19 pandemic.