SAFE Working Paper No. 152
72 Pages Posted: 25 Oct 2016 Last revised: 6 Mar 2017
Date Written: March 6, 2017
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 Eisert, Tim and Eufinger, Christian and Hirsch, Christian W., Whatever It Takes: The Real Effects of Unconventional Monetary Policy (March 6, 2017). SAFE Working Paper No. 152. Available at SSRN: https://ssrn.com/abstract=2858147