The ECB and the Interbank Market

Lucrezia Reichlin, Huw Pill, Domenico Giannone and Michele Lenza

No 8844, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyses the impact on the macroeconomy of the ECB?s non-standard monetary policy implemented in the aftermath of the collapse of Lehman Brothers in the Fall of 2008. We study in particular the effect of the expansion of the intermediation of transactions across central bank balance sheets as dysfunctional financial markets seize up, which we regard as a key channel of transmission for non-standard monetary policy measures. Our approach is similar to Lenza et al., 2009 but we introduce the important innovation of distinguishing between private intermediation of interbank transactions in the money market and central bank intermediation of bank-to-bank transactions across the Eurosystem balance sheet. We do this by exploiting data drawn from the aggregate Monetary and Financial Institutions (MFI) balance sheet which allows us to construct a new measure of the ?policy shock? represented by the ECB?s increasing role as a financial intermediary. We find that bank loans to households and, in particular, to non-financial corporations are higher than would have been the case without the ECB?s intervention. In turn, the ECB?s support has a significant impact on economic activity: two and a half years after the failure of Lehman Brothers, the level of industrial production is estimated to be 2% higher, and the unemployment rate 0.6 percentage points lower, than would have been the case in the absence of the ECB?s non-standard monetary policy measures.

Keywords: Interbank market; Non-standard monetary policy measures (search for similar items in EconPapers)
JEL-codes: E5 E58 (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (104)

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Journal Article: The ECB and the Interbank Market (2012)
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Working Paper: The ECB and the interbank market (2012)
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