Unintended Consequences of Central Bank Lending in Financial Crises

Christiaan van der Kwaak

The Economic Journal, 2024, vol. 134, issue 658, 728-765

Abstract: I investigate the macroeconomic impact of central bank funding becoming a more attractive funding source to financial intermediaries in times of crisis. I show that the requirement to pledge collateral has a contractionary effect on private credit, everything else equal, and thereby reduces the expansionary effect that such lending otherwise has. I use an estimated New Keynesian model with financial frictions to show that the collateral effect explains the limited growth of Italian banks’ private credit in response to the European Central Bank’s three-year longer-term refinancing operations. Finally, I explore whether changes in lending policy can offset the cumulative negative effects from the collateral effect.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/ej/uead078 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:econjl:v:134:y:2024:i:658:p:728-765.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Economic Journal is currently edited by Francesco Lippi

More articles in The Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press () and ().