Matteo Crosignani

Working Papers

Zombie Credit and (Dis-)Inflation: Evidence from Europe
Being revised for resubmission at the Journal of Finance
Co-authors: V. Acharya, T. Eisert, C. Eufinger, December 2020
Paper · BibTeX · VoxEU · WSJ · FT · Liberty Street
FRBNY/NYU FI 2019, MonPolicy & Reality, FIRS 2020, Cavalcade 2020, WFA 2020, AFA 2021

Abstract: We show that “zombie credit”—cheap credit to impaired firms—has a disinflationary effect. By helping distressed firms to stay afloat, such credit creates excess production capacity, thereby putting downward pressure on product prices. Granular European data on inflation, firms, and banks confirm this mechanism. Industry-country pairs affected by a rise of zombie credit show lower firm entry and exit rates, markups, and product prices, as well as a misallocation of capital and labor, which results in lower productivity, investment, and value added. Without a rise in zombie credit, inflation in Europe would have been 0.4 percentage points higher post-2012.

Exorbitant Privilege? Quantitative Easing and the Bond Market Subsidy of Prospective Fallen Angels
Co-authors: Viral Acharya, Ryan Banerjee, Tim Eisert, Renée Spigt, June 2022
AFA 2022 · EFA 2022 · NBER SI EFEL 2021 ·  Oxford Macro-Finance 2021 · NBER SI CF/RISK 2022
Paper · BibTeX · Liberty Street · FT · Bloomberg

Abstract: We document capital misallocation in the U.S. investment-grade (IG) corporate bond market, driven by quantitative easing (QE). Prospective fallen angels—risky firms just above the IG rating cutoff—enjoyed subsidized bond financing since 2009, especially when the scale of QE purchases peaked and from long-duration IG-focused investors that held more securities purchased in QE programs. The benefiting firms used this privilege to fund risky acquisitions and increase market share, exploiting the sluggish adjustment of credit ratings in downgrading after M&A, which adversely affected competitors’ employment and investment.  Eventually, these firms suffered severe downgrades at the onset of the pandemic.