Monetary Stimulus and Bank Lending

60 Pages Posted: 21 Feb 2016 Last revised: 4 Oct 2016

Indraneel Chakraborty

University of Miami

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department

Andrew MacKinlay

Virginia Tech

Date Written: October 3, 2016


In recent business cycle downturns, monetary policymakers worldwide have sought to stimulate their economies by conducting asset purchases. The U.S. Federal Reserve purchased both agency mortgage-backed securities (MBS) and Treasury (TSY) securities, which are generally thought to be comparable in credit quality and stimulative effects. This paper investigates the effect of such purchases on mortgage lending, commercial lending, and firm investment using micro-level data. We find that MBS and TSY purchases have asymmetric effects. In response to MBS purchases, banks that are active in the MBS market increase their mortgage origination market share, compared to other banks. At the same time, these banks reduce commercial lending. As a result, firms that borrow from these banks decrease investment. The effect of TSY purchases is either positive, as expected, or insignificant in most cases. Our results suggest different effects depending on the type of asset purchased, that MBS purchases cause distortionary effects across banks and firms, and that TSY purchases did not cause a large positive stimulus to the economy through the bank lending channel.

Keywords: Bank Lending, Quantitative Easing, Mortgage-Backed Securities

JEL Classification: G21, G32, G32, E52, E58

Suggested Citation

Chakraborty, Indraneel and Goldstein, Itay and MacKinlay, Andrew, Monetary Stimulus and Bank Lending (October 3, 2016). Finance Down Under 2017 Building on the Best from the Cellars of Finance. Available at SSRN: or

Indraneel Chakraborty

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
312-208-1283 (Phone)


Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0499 (Phone)

Andrew MacKinlay (Contact Author)

Virginia Tech

1016 Pamplin Hall (0221)
880 West Campus Drive
Blacksburg, VA 24060-0221
United States

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