Unconventional monetary policy and credit market activity

Juan Carlos Medina Guirado ()
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Juan Carlos Medina Guirado: UACJ

No 57, Estudios Regionales en Economía, Población y Desarrollo. Cuadernos de Trabajo de la Universidad Autónoma de Ciudad Juárez. from Cuerpo Académico 41 de la Universidad Autónoma de Ciudad Juárez

Abstract: Since the 2007-2009 financial recession and up until the present day, the main central banks have resorted to nontraditional policy tools to stimulate economic activity. A distinctive example was the expansion of the size of their balance sheets through the purchase of long-term government securities. In this paper I analyze the effect on credit markets of this “unconventional” monetary policy tool and compare it with that of conventional instruments such as open market operations. Our findings suggest that central bank purchases of long-term government securities stimulate credit market activity and reduce the cost of public and private borrowing only under a low interest rate and reduced fiscal debt regime. Otherwise, this policy increases the cost of servicing debt resulting in a contraction of lending. In contrast, open market operations aid credit availability but negatively affect the amount of risk-sharing in the economy.

Keywords: Central Banking; unconventional monetary policy; financial intermediation; credit markets. (search for similar items in EconPapers)
JEL-codes: E31 E44 E52 E58 (search for similar items in EconPapers)
Pages: pages 38
Date: 2020-01-04, Revised 2020-01-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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