Are LTROs Monetary Policy Operations or Is the Central Bank Behaving as a Market Maker of Last Resort? A Reply to Febrero, Uxó and Dejuán

I argue in this note that LTROs are not defensive monetary policy operations in the sense attributed to the word in the post-Keynesian literature. However, they may not even be as accommodative as they might seem at first glance. Perhaps they are simply a disguised operation of buying securities by the central bank. Although legally they are long-term loans, they are economically similar to the underwriting of long-term bank bonds. Further, I argue that LTRO did not serve to repair the transmission mechanism of monetary policy and provide access to the interbank market for those countries that were outside it. I wonder whether that access to the interbank market was useful, since access to unlimited central bank funding was guaranteed. The rate on this refinancing was transmitted directly to the rate on loans. The traditional transmission mechanism was already engendered by structural transformations in the interbank market.