Targeted monetary policy and bank lending behavior

Matteo Benetton and Davide Fantino

Journal of Financial Economics, 2021, vol. 142, issue 1, 404-429

Abstract: We exploit an allocation rule set by the ECB for the first series of TLTROs to study the effects of targeted monetary policy on banks’ credit supply to firms. Combining transaction-level data from the Italian credit register and an instrumental variable identification strategy, we find that targeted longer-term central bank liquidity decreased rates and increased loan amounts, also avoiding some unintended consequences of untargeted measures, such as carry-trade strategies and risk shifting. We show that the outward shift in banks’ credit supply was heterogeneous, taking place only in more competitive banking markets, with stronger effects for smaller and safer firms.

Keywords: Unconventional monetary policy; Bank competition; Pass-through; Central bank liquidity; Small businesses (search for similar items in EconPapers)
JEL-codes: D4 E50 E58 G21 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:142:y:2021:i:1:p:404-429

DOI: 10.1016/j.jfineco.2021.05.002

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