Do conventional monetary policy instruments matter in unconventional times?
Kirsten Schmidt and
Lena Tonzer ()
No 27/2019, Discussion Papers from Deutsche Bundesbank
This paper investigates how declines in the deposit facility rate set by the ECB affect euro area banks' incentives to hold reserves at the central bank. We find that, in the face of lower deposit rates, banks with a more interest-sensitive business model are more likely to reduce reserve holdings and allocate freed-up liquidity to loans. The result is driven by wellcapitalized banks in the non-GIIPS countries of the euro area. This reveals that conventional monetary policy instruments have limited effects in restoring monetary policy transmission during times of crisis.
Keywords: bank portfolio; central bank reserves; monetary policy (search for similar items in EconPapers)
JEL-codes: E52 G11 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-mon
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Working Paper: Do conventional monetary policy instruments matter in unconventional times? (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:272019
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