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By focusing on the cost conditions at issuance, I find that not only the Covid-19 pandemic effects were different across bonds and firms at different stages, but also that the market composition was significantly affected, collapsing on investment- grade bonds, a segment in which the share of bonds eligible to the ECB corporate programmes strikingly increased from 15% to 40%. At the same time the high-yield segment shrunk to almost disappear at 4%. In addition to a market segmentation along the bond grade and the eligibility to the ECB programmes, another source of risk detected in the pricing mechanism is the weak resilience to pandemic: the premium requested is around 30 basis points and started to be priced only after the early containment actions taken by the national authorities. On the contrary, I do not find evidence supporting an increased risk for corporations headquartered in countries with a reduced fiscal space, nor the existence of a premium in favour of green bonds, which should be the backbone of a possible “green recovery”.
What institutional arrangements for an independent central bank with a price stability mandate promote good policy outcomes when unconventional policies become necessary? Unconventional monetary policy poses challenges. The large scale asset purchases needed to counteract the zero lower bound on nominal interest rates have uncomfortable fiscal and distributional consequences and require central banks to assume greater risks on their balance sheets.
In his paper, Athanasios Orphanides draws lessons from the experience of the Bank of Japan (BoJ) since the late 1990s for the institutional design of independent central banks. He comes to the conclusion that lack of clarity on the precise definition of price stability, coupled with concerns about the legitimacy of large balance sheet expansions, hinders policy: It encourages the central bank to eschew the decisive quantitative easing needed to reflate the economy and instead to accommodate too-low inflation. The BoJ’s experience with the zero lower bound suggests important benefits from a clear definition of price stability as a symmetric 2% goal for inflation, which the Bank adopted in 2013.