How do quantitative easing and tightening affect firms?

BIS Working Papers  |  No 1286  | 
02 September 2025
by Egemen Eren, Denis Gorea and Daojing Zhai
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Summary

Focus

We examine the effects of the Federal Reserve's quantitative easing (QE) and quantitative tightening (QT) policies on firm-level financing and real economic outcomes. We construct a novel time series of maturity-specific balance sheet shocks to look at how firms adjust their debt structure, investment and employment in response to central bank interventions targeting different segments of the yield curve.

Contribution

We take a detailed look at how central bank policies affect firms. Our approach introduces a new methodology to isolate unanticipated shocks across maturity segments, covering multiple QE and QT programmes from 2011 to 2024. We also examine how responses differ across firms, particularly by credit quality, and highlight the role of bond markets as the primary channel of transmission in the United States.

Findings

We study how firms respond to quantitative easing (QE) and quantitative tightening (QT) policies of the Federal Reserve. In response to central bank purchases of government bonds, we find that, on average, firms adjust their debt maturity structure, reduce interest expenses and accumulate cash, while their total debt, capital and employment remain largely unchanged. The impact of these policies differs depending on the targeted maturity segment and the credit quality of firms. Policy transmission primarily runs via bond markets. There are positive spillovers to highly rated non-US firms. Our findings can inform the design of balance sheet policies.

Abstract

We study how firms respond to quantitative easing (QE) and quantitative tightening (QT) policies of the Federal Reserve. We construct a novel time series of maturity-specific central bank balance sheet shocks covering multiple QE and QT programs. In response to central bank purchases of government bonds, we find that, on average, firms adjust their debt maturity structure, reduce interest expenses and accumulate cash, while their total debt, capital and employment remain largely unchanged. The impact of these policies differs depending on the targeted maturity segment and the credit quality of firms. Policy transmission primarily runs via bond markets. There are positive spillovers to high-rated non-US firms. Our findings can inform the design of balance sheet policies.

JEL classification: E44, G11, G12, G23

Keywords: quantitative easing, quantitative tightening, debt, maturity, real effects

The views expressed in this publication are those of the authors and not necessarily those of the BIS.