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Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area

Author

Listed:
  • Christian Bittner

    (Deutsche Bundesbank and Goethe University Frankfurt)

  • Alexander Rodnyansky

    (Presidential Offce of Ukraine, University of Cambridge, and CEPR)

  • Farzad Saidi

    (University of Bonn and CEPR)

  • Yannick Timmer

    (Federal Reserve Board)

Abstract

We study the interaction of expansionary rate-based monetary policy and quantitative easing, despite their concurrent implementation, by exploiting heterogeneous banks and the introduction of negative monetary-policy rates in a fragmented euro area. Quantitative easing increases credit supply less, translating into weaker employment growth, when banks' funding costs do not decrease. Using administrative data from Germany, we uncover that among banks selling their securities, central-bank reserves remain disproportionately with high-deposit banks that are constrained due to sticky customer deposits at the zero lower bound. Affected German banks lend relatively less to firms while increasing their interbank exposure in the euro area.

Suggested Citation

  • Christian Bittner & Alexander Rodnyansky & Farzad Saidi & Yannick Timmer, 2024. "Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area," ECONtribute Discussion Papers Series 292, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:292
    as

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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_292_2024.pdf
    File Function: First version, 2024
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    More about this item

    Keywords

    Negative Interest Rates; Quantitative Easing; Unconventional Monetary Policy; Bank Lending Channel;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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