Working Paper: CEPR ID: DP17827
Authors: Christian Bittner; Alexander Rodnyansky; Farzad Saidi; Yannick Timmer
Abstract: We study jointly expansionary rate-based monetary policy and quantitative easing, despite their concurrent implementation around the world, by exploiting the introduction of negative monetary-policy rates in a fragmented euro area, alongside cross-sectional heterogeneity in banks’ balance sheets. Banks more exposed to quantitative easing are less likely to increase credit supply when they incur higher funding costs due to a zero lower bound (ZLB) on deposit rates. Using administrative data from Germany, we also uncover that German banks rebalance their interbank lending from safe to risky countries, and that the ZLB on deposit rates compromised the effectiveness of quantitative easing.
Keywords: Negative Interest Rates; Quantitative Easing; Unconventional Monetary Policy; Bank Lending Channel
JEL Codes: E44; E52; E58; E63; F45; G20; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Banks more exposed to QE (F65) | Reduce credit supply (E51) |
| Higher funding costs due to ZLB on deposit rates (E43) | Less likely to lend (G21) |
| Negative impact on credit supply is compounded in low-rate environments (F65) | Particularly in Germany (N94) |
| Adverse interaction between QE and negative rates (E43) | Less effective in stimulating employment in euro area compared to US (E69) |