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Monetary Policy at the Zero Lower Bound: The Chilean Experience

In: Macroeconomic and Financial Stability: challenges for Monetary Policy

Author

Listed:
  • Luis F. Céspedes

    (Universidad Adolfo Ibáñez)

  • Javier García-Cicco

    (Banco Central de Chile Universidad Católica Argentina)

  • Diego Saravia

    (Banco Central de Chile)

Abstract

In this paper we analyze the effects of the Term Liquidity Program (FLAP) implemented by the Central Bank of Chile in response to the financial crisis of 2008-2009. We find that the announcement related to this policy significantly reduced nominal yields in the policy horizon of two years. These results suggest that the credibility goal of this unconventional policy (i.e. to convey the message that the monetary policy rate was to remain at its lower bound for a prolonged period of time) was achieved. We also analyze how the usage of that facility by banks affected the credit they supply. We find that banks that borrowed from this facility increase commercial and consumer loans, relative to those that did not, but mortgage credit was not significantly affected. In other words, this additional source of short-term borrowing was used mainly to finance short-term lending.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Luis F. Céspedes & Javier García-Cicco & Diego Saravia, 2014. "Monetary Policy at the Zero Lower Bound: The Chilean Experience," Central Banking, Analysis, and Economic Policies Book Series, in: Sofía Bauducco & Lawrence Christiano & Claudio Raddatz (ed.),Macroeconomic and Financial Stability: challenges for Monetary Policy, edition 1, volume 19, chapter 13, pages 427-460, Central Bank of Chile.
    • Handle: RePEc:chb:bcchsb:v19c13pp427-460
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    Cited by:

    1. Fornero, Jorge & Kirchner, Markus & Molina, Carlos, 2024. "Estimating shadow policy rates in a small open economy and the role of foreign factors," Journal of International Money and Finance, Elsevier, vol. 140(C).
    2. Claeys, Grégory & Papioti, Chara & Tryphonides, Andreas, 2023. "Liquidity risk, market power and the informational effects of policy," Journal of International Economics, Elsevier, vol. 142(C).

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