Monetary Policy Shocks and the Health of Banks

57 Pages Posted: 1 Aug 2019

See all articles by Alexander Jung

Alexander Jung

European Central Bank

Harald Uhlig

University of Chicago - Department of Economics

Date Written: July, 2019


Based on high frequency identification and other econometric tools, we find that monetary policy shocks had a significant impact on the health of euro area banks. Information effects, which made the private sector more pessimistic about future prospects of the economy and the profitability of the banking sector, were strongly present in the post-crisis period. We show that ECB communications at the press conference were crucial for the market response and that bank health benefitted from surprises, which steepened the yield curve. We find that the effects of monetary policy shocks on banks displayed some persistence. Other bank characteristics, in particular bank size, leverage and NPL ratios, amplified the impact of monetary policy shocks on banks. After the OMT announcement, we detect that the response of bank stocks to monetary policy shocks normalised. We discover that, in the post-crisis episode, Fed monetary policy shocks influenced euro area bank stock valuations.

Keywords: high-frequency identification, information effects, local projections, panel of individual banks

JEL Classification: E40, E52, G14, G21

Suggested Citation

Jung, Alexander and Uhlig, Harald, Monetary Policy Shocks and the Health of Banks (July, 2019). Available at SSRN: or

Alexander Jung (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
00496913447674 (Phone)
00496913447604 (Fax)

Harald Uhlig

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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