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Monetary Policy and Credit Markets

Paper Session

Friday, Jan. 5, 2018 10:15 AM - 12:15 PM

Loews Philadelphia, Adams
Hosted By: International Banking, Economics, and Finance Association
  • Chair: Alistair Milne, Loughborough University

Monetary Normalizations and Consumer Credit: Evidence From Fed Liftoff and Online Lending

Christoph Bertsch
,
Sveriges Riksbank
Isaiah Hull
,
Sveriges Riksbank
Xin Zhang
,
Sveriges Riksbank

Abstract

On December 16th of 2015, the Fed initiated "liftoff," a critical step in the monetary normalization process. We use a unique panel dataset of 640,000 loan-hour observations to measure the impact of liftoff on interest rates, demand, and supply in the online primary market for uncollateralized consumer credit. We find that the average interest rate dropped by 16.9-22.6 basis points, driven by a 16% decline in the spread. Our findings are consistent with an investor-perceived reduction in default probabilities; and suggest that liftoff provided a strong, positive signal about the future solvency of borrowers.

Cross-border Bank Flows and Monetary Policy

Ricardo Correa
,
Federal Reserve Board
Teodora Paligorova
,
Federal Reserve Board
Horacio Sapriza
,
Federal Reserve Board
Andrei Zlate
,
Federal Reserve Bank of Boston

Abstract

TBD

Do Conventional Monetary Policy Instruments Matter in Unconventional Times?

Manuel Buchholz
,
Deutsche Bundesbank
Kirsten Schmidt
,
Halle Institute for Economic Research
Lena Tonzer
,
Halle Institute for Economic Research

Abstract

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 well-capitalized banks in the non-GIIPS countries of the euro area. This reveals limitations of conventional monetary policy instruments during times of crisis and may be one reason for the ECB’s switch to unconventional monetary policy instruments.

Window-dressing and the Fed's RRP Facility in the Repo Market

Sriya L. Anbil
,
Federal Reserve Board
Zeynep Senyuz
,
Federal Reserve Board

Abstract

We analyze repurchase agreement (repo) markets in the wake of Basel III regulations and the reverse repo facility of the Federal Reserve (Fed). Using a proprietary data set of repo transactions, we find that differences in regional implementation of these regulations intensified window-dressing by European dealers who reduced their borrowing by 17% on financial reporting days. Consequently, money funds cut their repo lending by half and lent to the Fed instead when European dealers withdraw. In a difference-in-differences setting, we quantify these effects on relationships, and find that funds ineligible for Fed trades lent 15% less to European dealers compared with eligible funds.
Discussant(s)
John Driscoll
,
Federal Reserve Board
Wilko Bolt
,
Central Bank of the Netherlands
Judit Temesvary
,
Federal Reserve Board
Christoffer Koch
,
Federal Reserve Bank of Dallas
JEL Classifications
  • G2 - Financial Institutions and Services
  • E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit