Unconventional Monetary Policy, Funding Expectations, and Firm Decisions

58 Pages Posted: 7 Oct 2021

See all articles by Annalisa Ferrando

Annalisa Ferrando

European Central Bank (ECB)

Alexander A. Popov

European Central Bank (ECB)

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance

Date Written: October, 2021

Abstract

We study the transmission of (unconventional) monetary policy to the real sector when firm decisions depend on both current and future credit market conditions. For a given level of current credit access, investment and employment increases more at firms expecting bank credit to improve in the future. Three separate unconventional policies by the ECB—the OMT, the introduction of negative rates, and the CSPP—improved expectations of future credit access for SMEs borrowing from banks that were expected to increase SME lending due to the policy. Our results enhance our understanding of the bank balance sheet channel of monetary policy.

Keywords: corporate investment, funding expectations, Unconventional monetary policy

JEL Classification: D22, D84, E58, G21, H63

Suggested Citation

Ferrando, Annalisa and Popov, Alexander A. and Udell, Gregory F., Unconventional Monetary Policy, Funding Expectations, and Firm Decisions (October, 2021). ECB Working Paper No. 2021/2598, Available at SSRN: https://ssrn.com/abstract=3937768 or http://dx.doi.org/10.2139/ssrn.3937768

Annalisa Ferrando (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Alexander A. Popov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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