The Effectiveness of the Non-Standard Policy Measures During the Financial Crises: The Experiences of the Federal Reserve and the European Central Bank

57 Pages Posted: 23 Jul 2013

See all articles by Seth B. Carpenter

Seth B. Carpenter

Federal Reserve Board - Department of Monetary Affairs

Selva Demiralp

Koc University - Department of Economics

Jens Eisenschmidt

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: March 14, 2013

Abstract

A growing number of studies have sought to measure the effects of non-standard policy on bank funding markets. The purpose of this paper is to carry those estimates a step further by looking at the effects of bank funding market stress on the volume of bank lending, using a simultaneous equation approach. By separately modeling loan supply and demand, we determine how non-standard central bank measures affected bank lending by reducing stress in bank funding markets. We focus on the Federal Reserve and the European Central Bank. Our results suggest that non-standard policy measures lowered bank funding volatility. Lower bank funding volatility in turn increased loan supply in both regions, contributing to sustain lending activity. We consider this as strong evidence for a "bank liquidity risk channel", operative in crisis environments, which complements the usual channels of transmission of monetary policy.

Keywords: Bank lending, non-standard policy, bank funding volatility

JEL Classification: E58, G32, G21

Suggested Citation

Carpenter, Seth B. and Demiralp, Selva and Eisenschmidt, Jens, The Effectiveness of the Non-Standard Policy Measures During the Financial Crises: The Experiences of the Federal Reserve and the European Central Bank (March 14, 2013). FEDS Working Paper No. 2013-34. Available at SSRN: https://ssrn.com/abstract=2297004 or http://dx.doi.org/10.2139/ssrn.2297004

Seth B. Carpenter (Contact Author)

Federal Reserve Board - Department of Monetary Affairs ( email )

20th and C Streets, NW
Mailstop 60
Washington, DC 20551
United States
202-452-2385 (Phone)
202-452-2301 (Fax)

Selva Demiralp

Koc University - Department of Economics ( email )

Rumeli Feneri Yolu
Sariyer 80910 Istanbul
Turkey
+212 338 1842 (Phone)

Jens Eisenschmidt

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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