Matteo Crosignani

Working Papers

Zombie Credit and (Dis-)Inflation: Evidence from Europe
Review-and-resubmit at the Journal of Finance
Co-authors: V. Acharya, T. Eisert, C. Eufinger, August 2022
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”—subsidized credit to non-viable firms—has a disinflationary effect. By keeping these firms afloat, zombie credit creates excess aggregate supply, thereby putting downward pressure on prices. Granular European data on inflation, firms, and banks confirm this mechanism. Markets affected by a rise in zombie credit experience lower firm entry and exit, capacity utilization, markups, and inflation, as well as a misallocation of capital and labor, which results in lower productivity, investment, and value added. If weakly-capitalized banks were recapitalized in 2009, inflation in Europe would have been up to 0.45pp 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, November 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 between 2009 and 2019, 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 financed risky acquisitions with bond issuances, exploiting the sluggish adjustment of credit ratings in downgrading issuers after M&A. This activity increased the firms’ market share, adversely affecting competitors’ employment and investment. Eventually, these firms suffered severe downgrades at the onset of the pandemic.