Monetary Stimulus and Bank Lending

57 Pages Posted: 21 Feb 2016 Last revised: 21 Dec 2017

Indraneel Chakraborty

University of Miami

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department

Andrew MacKinlay

Virginia Tech

Date Written: December 20, 2017

Abstract

The U.S. Federal Reserve purchased both agency mortgage-backed securities (MBS) and Treasury securities to conduct quantitative easing (QE). Using micro-level data, we find that banks benefiting from MBS purchases increase mortgage origination, compared to other banks. At the same time, these banks reduce commercial lending and firms that borrow from these banks decrease investment. The effect of Treasury purchases is different: either positive or insignificant in most cases. Our results suggest that MBS purchases caused unintended real effects and that Treasury 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 (December 20, 2017). Finance Down Under 2017 Building on the Best from the Cellars of Finance. Available at SSRN: https://ssrn.com/abstract=2734910 or http://dx.doi.org/10.2139/ssrn.2734910

Indraneel Chakraborty

University of Miami ( email )

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

HOME PAGE: http://sites.google.com/site/chakraborty/

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 ( email )

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

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