Employment Effects of Unconventional Monetary Policy: Evidence from QE

74 Pages Posted: 19 Jul 2017 Last revised: 25 Jan 2018

Stephan Luck

Board of Governors of the Federal Reserve System

Tom Zimmermann

QuantCo, Inc.; University of Cologne

Date Written: January 17, 2018

Abstract

This paper investigates the effect of the Federal Reserve's unconventional monetary policy on employment via a bank lending channel. We find that banks with higher mortgage-backed securities holdings issued relatively more loans after the first and third rounds of quantitative easing (QE1 and QE3). While additional volume is concentrated in refinanced mortgages after QE1, increases are driven by newly originated home purchase mortgages and additional commercial and industrial lending after QE3. Using spatial variation, we show that regions with a high share of affected banks experienced stronger employment growth after both, QE1 and QE3. However, while the ability of households to refinance mortgages after QE1 spurred local demand, the resulting additional employment growth was relatively weak and confined to the non-tradable goods sector. In contrast, the increase in overall employment after QE3 is sizable and can be attributed to the supply of additional credit to firms. To support this finding, we use new confidential loan-level data to show that firms with stronger ties to affected banks increased employment and capital investment more after QE3. Altogether, our findings suggest that unconventional monetary policy can, similar to conventional monetary policy, affect real economic outcomes.

Keywords: monetary policy, employment, real effects, large scale asset purchases, quantitative easing

JEL Classification: E00, E02, E20, E65

Suggested Citation

Luck, Stephan and Zimmermann, Tom, Employment Effects of Unconventional Monetary Policy: Evidence from QE (January 17, 2018). Available at SSRN: https://ssrn.com/abstract=3002047 or http://dx.doi.org/10.2139/ssrn.3002047

Stephan Luck (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Tom Zimmermann

QuantCo, Inc. ( email )

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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