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Assessing the macroeconomic effects of LTROS

Christophe Cahn (), Julien Matheron () and Jean-Guillaume Sahuc ()

Working papers from Banque de France

Abstract: In response to the 2008-2009 crisis, faced with distressed financial intermediaries, the ECB embarked in long-term refinancing operations (LTROs). Using an estimated DSGE model with a frictional banking sector, we find that such liquidity injections can have large macroeconomic effects, with multipliers up to 0.5. However, the latter depend in an important way on how standard monetary policy is adjusted in conjunction with these non-standard measures. We find that the effects are larger when the separation principle is breached, that is to say when we force monetary policy not to react to the stimulative effects of LTROs.

Keywords: Financial frictions; unconventional monetary policy; long-term refinancing operations; DSGE model. (search for similar items in EconPapers)
JEL-codes: E32 E58 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:528

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