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Unconventional Monetary Policy in the Euro Area. Impacts on Loans, Employment, and Investment

Antonio Afonso and Francisco Gomes Pereira

No 9610, CESifo Working Paper Series from CESifo

Abstract: Using a difference-in-differences identification strategy on a micro panel at the bank and firm level, we study the transmission effectiveness of ECB’s large-scale asset purchasing programs programs (i.e. APP and PEPP) in the Euro area. Our findings show: first, balance sheet composition of banks is an important determinant of monetary policy transmission. We tested this hypothesis by showing that banks more exposed to government debt securities had higher loan growth than less exposed banks after the APP announcement. By extension, this could lead to heterogeneous economic impacts depending on the geographical location of exposed banks. For the PEPP, contrary to the APP, we did not find a portfolio-rebalancing channel for banks that were more exposed to government debt securities. Second, using balance sheet data on corporates, we verify that firms that borrowed more increased employment and fixed capital investment, albeit to a lesser degree than before the APP announcement. Furthermore, our sample shows that corporations in countries with banks more exposed to government debt securities had higher borrowing growth and fixed capital growth versus countries with less exposed banks.

Keywords: unconventional monetary policy; difference-in-differences; euro area; employment; investment (search for similar items in EconPapers)
JEL-codes: C23 D22 E52 E58 G11 G20 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-eec, nep-fdg, nep-mac and nep-mon
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