Research

Job market paper

Does the corporate branch of unconventional monetary policy have an effect on the market power of firms? I address this question both empirically and theoretically. Exploiting publicly available data on the Corporate Sector Purchase Programme carried out by the European Central Bank, I build security-level datasets identifying which bonds the Eurosystem actually bought, and when. Firms whose bonds were purchased raise their markups by 6.9 log points. The transmission channel runs from issuing conditions to capital: purchased bonds are issued at a 22 basis point lower yield to maturity, and purchased firms invest 2.2 percentage points more. These effects materialise only under two conditions: purchases must be repeated over the years, and they must happen within a week of the bond issuance. A three-period general equilibrium model rationalises these findings, combining endogenous markups and financial frictions. Purchases reduce private intermediaries’ holdings of a firm’s debt, raise the price at which it is placed, relax the constraint on capital, and so raise output, market share and markups. A quantitative version evaluates purchase designs that trade off relaxing financial constraints against raising market power.