How the Eurosystem’s enhanced credit support policy contributed to averting a severe credit crunch in 2009

The authors show that the Eurosystem’s Enhanced Credit Support policy package successfully contributed to averting a major credit crunch in 2009. This package included mainly the fixed rate full allotment (FRFA) and the longer-term refinancing operations (LTROs). According to the authors’ calculations, without these non-standard monetary policy measures, the euro area’s GDP growth would have been, on average, 2.2 percentage points lower than the actual level obser ved over 2009. Credit spreads would have jumped by an extra 400 basis points. The zero lower bound on nominal interest rates would have been hit in mid-2009. What is more, the euro area would have entered into a mild deflationary episode. The authors’ assessment is based on a counterfactual simulation drawn from an estimated macroeconomic model with banking frictions.