Nonbank Lending and the Transmission of Monetary Policy

Abstract We analyze the role of nonbank lenders in the transmission of monetary policy using data on the universe of unsecured credit to firms and households in Denmark. Nonbanks increase their credit supply after a monetary contraction, both relative to banks and in absolute terms. The increase in nonbank lending is financed through increased long-term debt. A model with segmented debt markets featuring differential investor rate sensitivities rationalizes these findings. Nonbank credit insulates corporate investment and household consumption from monetary contractions, with positive spillovers extending beyond nonbank clients through industry and geographic channels.