Advanced Search
MyIDEAS: Login

The ECB and the Interbank Market

Contents:

Author Info

  • Domenico Giannone
  • Michèle Lenza
  • Huw Pill
  • Lucrezia Reichlin

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/108100/1/2012-005-GIANNONE_LENZA_PILL_REICHLIN-theecb.pdf
Our checks indicate that this address may not be valid because: 500 Can't connect to dipot.ulb.ac.be:443 (certificate verify failed). If this is indeed the case, please notify (Benoit Pauwels)
Download Restriction: no

Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2012-005.

as in new window
Length: 24 p.
Date of creation: Jan 2012
Date of revision:
Publication status: Published by:
Handle: RePEc:eca:wpaper:2013/108100

Contact details of provider:
Postal: Av. F.D., Roosevelt, 39, 1050 Bruxelles
Phone: (32 2) 650 30 75
Fax: (32 2) 650 44 75
Web page: http://difusion.ulb.ac.be
More information through EDIRC

Related research

Keywords: non-standard monetary policy measures; interbank market;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Martha Banbura & Domenico Giannone & Lucrezia Reichlin, 2008. "Large Bayesian VARs," Working Papers ECARES 2008_033, ULB -- Universite Libre de Bruxelles.
  2. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
  3. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1986. "Forecasting and conditional projection using realistic prior distribution," Staff Report 93, Federal Reserve Bank of Minneapolis.
  4. Lasse Heje Pederson & Markus K Brunnermeier, 2007. "Market Liquidity and Funding Liquidity," FMG Discussion Papers dp580, Financial Markets Group.
  5. Domenico Giannone & Michèle Lenza & Giorgio E. Primiceri, 2012. "Prior Selection for Vector Autoregressions," Working Papers ECARES ECARES 2012-002, ULB -- Universite Libre de Bruxelles.
  6. Lenza, Michele & Pill, Huw & Reichlin, Lucrezia, 2010. "Monetary policy in exceptional times," CEPR Discussion Papers 7669, C.E.P.R. Discussion Papers.
  7. Christine De Mol & Domenico Giannone & Lucrezia Reichlin, 2006. "Forecasting using a large number of predictors - Is Bayesian regression a valid alternative to principal components?," Working Paper Series 700, European Central Bank.
  8. Florian Heider & Marie Hoerova & Cornelia Holthausen, 2009. "Liquidity Hoarding and Interbank Market Spreads: The Role of Counterparty Risk," Working Paper Series 1126, European Central Bank.
  9. Gary B. Gorton & Andrew Metrick, 2009. "Securitized Banking and the Run on Repo," NBER Working Papers 15223, National Bureau of Economic Research, Inc.
  10. A Durré & H Pill, 2012. "Central Bank balance sheets as policy tools," BIS Papers chapters, in: Bank for International Settlements (ed.), Are central bank balance sheets in Asia too large?, volume 66, pages 193-213 Bank for International Settlements.
  11. Joyce, Michael & Lasaosa, Ana & Stevens , Ibrahim & Tong, Matthew, 2010. "The financial market impact of quantitative easing," Bank of England working papers 393, Bank of England.
  12. Giannone, Domenico & Lenza, Michele & Pill, Huw & Reichlin, Lucrezia, 2010. "Non-standard Monetary Policy Measures and Monetary Developments," CEPR Discussion Papers 8125, C.E.P.R. Discussion Papers.
  13. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Stefan Kooths & Björn van Roye, 2012. "Euro Area: Single Currency - National Money Creation," Kiel Working Papers 1787, Kiel Institute for the World Economy.
  2. Michael Joyce & David Miles & Andrew Scott & Dimitri Vayanos, 2012. "Quantitative Easing and Unconventional Monetary Policy – an Introduction," Economic Journal, Royal Economic Society, vol. 122(564), pages F271-F288, November.
  3. Ewald" "Nowotny, 2012. "Der Euro - Vergangenheit, Gegenwart, Zukunft," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 38(2), pages 273-284.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eca:wpaper:2013/108100

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benoit Pauwels).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.