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International and Distributional Impact of Nonconventional Monetary Policy Measures

Paper Session

Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM

Atlanta Marriott Marquis, International 9
Hosted By: American Economic Association
  • Chair: Benoit Mojon, Banque de France

Whatever It Takes: Cross-Border Spillovers of a Major Central Bank Intervention

Carlo Alcaraz
,
Central Bank of Mexico
Stijn Claessens
,
Bank for International Settlements
Gabriel Cuadra
,
Central Bank of Mexico
Horacio Sapriza
,
Federal Reserve Board
David Marques-Ibanez
,
European Central Bank

Abstract

We analyze a major non-conventional central bank intervention by assessing the effects of Draghi’s “whatever it takes” speech on lending conditions. These monetary interventions tend to respond to, and concur with, rising financial and macroeconomic risks that lead to changes in both banks’ conditions and credit demand. We avoid these endogeneity concerns by focusing on Mexico, a country with a banking system with diverse ownership. We compare lending conditions to the same borrower by euro area banks and other banks largely sheltered from conditions in the euro area. We show that the intervention was effective in reducing risk-taking by euro banks. We also draw implications on the global impact on major central bank interventions.

Credit Supply and Demand in Unconventional Times

Carlo Altavilla
,
European Central Bank
Miguel Boucinha
,
European Central Bank
Sarah Holton
,
European Central Bank
Steven Ongena
,
University of Zurich

Abstract

Are credit supply and demand both bank-specific? To answer this question we use novel bank-specific survey data in order to analyze if both credit supply and demand can jointly explain actual bank-level credit growth during the last decade across the Euro Area. We find that both credit supply and demand determine credit growth, in a way that can be both time-varying and bank-specific. Importantly, we find that not only credit supply but also credit demand depend on bank balance sheet strength. We illustrate the importance of bank-specific demand (in addition to supply) by assessing the impact of quantitative easing on lending.

The Credit Channel of Unconventional Monetary Policy: Evidence from the United States

Giovanni Dell’ariccia
,
International Monetary Fund
Luc Laeven
,
European Central Bank
Gustavo Suarez
,
Federal Reserve Board

Abstract

We present new evidence of a credit channel of monetary policy for the U.S. banking system. We use confidential data on individual bank loans to businesses from 1997 to 2015 from the Federal Reserve’s Survey of Terms of Business Lending. We find that banks tend to originate loans with lower spreads during periods of low short-term interest rates, especially banks with relatively weak balance sheets. Similarly, we find that, after the substantial expansion of its balance sheet in 2009, increases in Treasury holdings by the Federal Reserve are associated with a decline in loan spreads, especially for banks with relatively weak balance sheets. These results are consistent with a credit channel of unconventional monetary policy whereby monetary stimulus in the form of asset purchases strengthens the balance sheets of firms and banks, thus reducing intermediation costs and promoting bank lending.

Hedger of Last Resort: Evidence from Brazil on Fx Interventions, Local Credit And Global Financial Cycles

Rodrigo Gonzalez
,
Central Bank of Brazil
Andrea Polo
,
Pompeu Fabra University
Dmitry Khametshin
,
Pompeu Fabra University
Jose Luis Peydro
,
Pompeu Fabra University

Abstract

We analyze whether changes in global financial conditions affect local credit and the real economy in emerging markets and whether local central banks can attenuate such spillovers. For identification, we exploit macro shocks and three matched administrative registers in Brazil: a register of foreign credit flows to Brazilian commercial banks, a credit register from the Central Bank of Brazil, and a matched employer-employee dataset from the Ministry of Labor and Employment. We show that after the announcement of US Quantitative Easing tapering by Ben Bernanke in May 2013, which was associated with massive depreciation and increased volatility of the local currency, domestic commercial banks with larger foreign liabilities reduced the supply of credit to firms and this had real effects in terms of formal employment. However, these negative effects were attenuated in the following months when the Central Bank of Brazil announced a massive intervention program in the FX derivatives market to provide insurance against exchange rate risks (hedger of last resort). On top of these two subsequent shocks, we also analyze a full panel dataset from 2008 to 2015 and identify a broader channel: banks with larger FX liabilities reduce their supply of credit after episodes of US Dollar appreciation. Moreover, these effects are partially mitigated in the two years after the intervention of the central bank confirming that the policy of hedger of last resort has been effective in decreasing local economy exposure to global financial conditions.
Discussant(s)
Asani Sarkar
,
Federal Reserve Bank of New York
Leonardo Gambacorta
,
Bank for International Settlements
Joe Peek
,
Federal Reserve Bank of Boston
Ricardo Correa
,
Federal Reserve Board
JEL Classifications
  • E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
  • G2 - Financial Institutions and Services