Liquidity provision to banks as a monetary policy tool: the ECB's non-standard measures in 2008-2011

Dominic Quint and Oreste Tristani

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: We study the macroeconomic consequences of the money market tensions associated with the financial crisis of 2008-2009. Our structural model includes the banking model of Gertler and Kyiotaki (2011) in the Smets and Wouters (2003) framework. We highlight two main results. First, a financial shock calibrated to account for the observed increase in spreads on the interbank market can account for one third of the observed, large fall in aggregate investment after the financial crisis of 2008. Second, the liqudity injected on the market by the ECB played an important role in attenuating the macroeconomic impact of the shock. In their absence, aggregate investment would have fallen much more--by between 50 and 70 percent. These effects are somewhat larger than estimated in other available studies.

JEL-codes: E44 E52 E58 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-eec, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:112974

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