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Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area

Christian Bittner, Alexander Rodnyansky, Farzad Saidi and Yannick Timmer

No 9363, CESifo Working Paper Series from CESifo

Abstract: In the presence of negative monetary-policy rates and a zero lower bound on deposit rates, banks that are more exposed to central banks’ asset-purchase programs reduce their lending to the real economy by more than their counterparts. When banks face a lower bound on customer deposit rates, an asset swap between securities and reserves reduces banks’ net worth as the cost of holding reserves cannot be matched with a reduction in their cost of funding. Exploiting euro-area syndicated lending data and the German credit registry, we provide evidence that deposit-reliant banks with relatively higher funding costs and greater exposure to large-scale asset purchases reduce corporate lending relatively more, have lower stock returns, and rebalance their interbank lending from safe to risky countries.

Keywords: negative interest rates; quantitative easing; unconventional monetary policy; bank lending channel (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-mon
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