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The effects of the monetary policy response to the COVID-19 pandemic: preliminary evidence from a pilot study using Austrian bank-level data

Claudia Kwapil () and Kilian Rieder ()
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Claudia Kwapil: Oesterreichische Nationalbank, Economic Analysis Division, http://www.oenb.at

Monetary Policy & the Economy, 2021, issue Q4/20-Q1/21, 131-152

Abstract: The Eurosystem’s monetary policy response to the COVID-19 crisis has been swift and powerful. Its policy package contained both extensions and enlargements of existing unconventional monetary policy measures, including the further loosening of their respective conditions. The Eurosystem also introduced new measures to meet the extraordinary challenge posed by the economic fallout of the COVID-19 pandemic. In this paper, we provide a pilot study to analyze the credit supply effects of one important building block of the monetary policy rescue package: the Eurosystem’s targeted longer-term refinancing operations (TLTROs). The modalities and conditions of the current vintage of TLTRO, TLTRO III, were significantly relaxed in spring 2020 in response to the COVID-19 pandemic. We draw on Austrian bank-level data and exploit an instrumental variable strategy to approximate the effects of the June 2020 TLTRO uptake on banks’ supply of new loans. We find evidence for an unambiguously positive effect of TLTRO participation on the supply of new loans in Austria. The estimated credit supply elasticity, however, differs substantially (ranging between 0.26 and 1.00), depending on the specification and caveats considered.

Keywords: COVID-19; monetary policy; targeted longer-term refinancing operations; credit supply (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 E58 (search for similar items in EconPapers)
Date: 2021
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