Whatever It Takes: The Real Effects of Unconventional Monetary Policy

Acharya, Viral V.; Eisert, Tim; Eufinger, Christian; Hirsch, Christian W.

doi:10.2139/ssrn.2740338

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Whatever It Takes: The Real Effects of Unconventional Monetary Policy

94 Pages Posted: 2 Mar 2016 Last revised: 19 Dec 2018

See all articles by Viral V. Acharya

Viral V. Acharya

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Tim Eisert

Erasmus University Rotterdam (EUR); Centre for Economic Policy Research (CEPR)

Christian Eufinger

IESE Business School

Christian W. Hirsch

University of Frankfurt; Leibniz Institute for Financial Research SAFE

There are 3 versions of this paper

Date Written: November 9, 2018

Abstract

Launched in Summer 2012, the European Central Bank (ECB)'s Outright Monetary Transactions (OMT) program indirectly recapitalized European banks through its positive impact on periphery sovereign bonds. However, the stability reestablished in the banking sector did not fully translate into economic growth. We document zombie lending by banks that remained undercapitalized even post-OMT. In turn, firms receiving loans used these funds not to undertake real economic activity such as employment and investment but to build up cash reserves. Creditworthy firms in industries with a high zombie firm prevalence suffered significantly from this credit misallocation, which further slowed down the economic recovery.

Keywords: Unconventional Monetary Policy, Real Effects, Zombie Lending

Suggested Citation: Suggested Citation

Acharya, Viral V. and Acharya, Viral V. and Eisert, Tim and Eufinger, Christian and Hirsch, Christian W. and Hirsch, Christian W., Whatever It Takes: The Real Effects of Unconventional Monetary Policy (November 9, 2018). Available at SSRN: https://ssrn.com/abstract=2740338 or http://dx.doi.org/10.2139/ssrn.2740338