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Whatever it takes: The Real Effects of Unconventional Monetary Policy

Viral V Acharya, Tim Eisert, Christian Eufinger and Christian Hirsch

No 12005, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Launched in Summer 2012, the European Central Bank (ECB)'s Outright Monetary Transactions (OMT) program indirectly recapitalized European banks through its positive impact on periphery sovereign bonds. However, the stability reestablished in the banking sector did not fully translate into economic growth. We document zombie lending by banks that remained undercapitalized even post-OMT. In turn, firms receiving loans used these funds not to undertake real economic activity such as employment and investment but to build up cash reserves. Creditworthy firms in industries with a high zombie firm prevalence suffered significantly from this credit misallocation, which further slowed down the economic recovery.

New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
Date: 2017-04
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