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

52 Pages Posted: 28 Oct 2021

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: 2021

Abstract

In the presence of negative monetary-policy rates and a zero lower bound on deposit rates, banks that are more exposed to central banks’ asset-purchase programs reduce their lending to the real economy by more than their counterparts. When banks face a lower bound on customer deposit rates, an asset swap between securities and reserves reduces banks’ net worth as the cost of holding reserves cannot be matched with a reduction in their cost of funding. Exploiting euro-area syndicated lending data and the German credit registry, we provide evidence that deposit-reliant banks with relatively higher funding costs and greater exposure to large-scale asset purchases reduce corporate lending relatively more, have lower stock returns, and rebalance their interbank lending from safe to risky countries.

Keywords: negative interest rates, quantitative easing, unconventional monetary policy, bank lending channel

JEL Classification: E520, E580, G210

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 (2021). CESifo Working Paper No. 9363, Available at SSRN: https://ssrn.com/abstract=3950098 or http://dx.doi.org/10.2139/ssrn.3950098

Christian Bittner (Contact Author)

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

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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