Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area

69 Pages Posted: 12 Oct 2021 Last revised: 12 Jul 2023

See all articles by Christian Bittner

Christian Bittner

Deutsche Bundesbank; Goethe University Frankfurt

Alexander Rodnyansky

University of Cambridge - Faculty of Economics; Centre for Economic Policy Research (CEPR)

Farzad Saidi

University of Bonn

Yannick Timmer

International Monetary Fund (IMF) - Research Department; Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: April 23, 2023

Abstract

We study the interaction of expansionary rate-based monetary policy and quantitative easing, despite their concurrent implementation, by exploiting heterogeneous banks and the introduction of negative monetary-policy rates in a fragmented euro area. Quantitative easing increases credit supply less, translating into weaker employment growth, when banks’ funding costs do not decrease. Using administrative data from Germany, we uncover that among banks selling their securities, central-bank reserves remain disproportionately with high-deposit banks that are constrained due to sticky customer deposits at the zero lower bound. Affected German banks lend relatively less to firms while increasing their interbank exposure in the euro area.

Keywords: Negative Interest Rates, Quantitative Easing, Unconventional Monetary Policy, Bank Lending Channel

JEL Classification: E44, E52, E58, E63, F45, G20, G21

Suggested Citation

Bittner, Christian and Rodnyansky, Alexander and Saidi, Farzad and Timmer, Yannick, Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area (April 23, 2023). Available at SSRN: https://ssrn.com/abstract=3940655 or http://dx.doi.org/10.2139/ssrn.3940655

Christian Bittner

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Goethe University Frankfurt ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt, Hesse 60629
Germany

Alexander Rodnyansky (Contact Author)

University of Cambridge - Faculty of Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

HOME PAGE: http://www.arodnyansky.com

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Farzad Saidi

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Yannick Timmer

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Board of Governors of the Federal Reserve System ( email )

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

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