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Can the Provision of Long-Term Liquidity Help to Avoid a Credit Crunch? Evidence from the Eurosystem's LTROs

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Listed:
  • P. Andrade
  • C. Cahn
  • H. Fraisse
  • J-S. Mésonnier

Abstract

We exploit the Eurosystem’s longer-term refinancing operations (LTROs) of 2011-2012 to analyze the effects that a large provision of central bank liquidity to banks has on the credit supply to firms. We control for credit demand by examining firms that borrow from several banks, in addition to controlling for banks’ risk. We find that LTROs enhanced loan supply in France. Nevertheless, the transmission took place mostly with the first operation of December 2011, in which constrained banks bid more, and larger borrowers benefited more. The opportunity to substitute long-term central bank borrowing for short-term borrowing was instrumental in this transmission.

Suggested Citation

  • P. Andrade & C. Cahn & H. Fraisse & J-S. Mésonnier, 2015. "Can the Provision of Long-Term Liquidity Help to Avoid a Credit Crunch? Evidence from the Eurosystem's LTROs," Working papers 540, Banque de France.
    • Handle: RePEc:bfr:banfra:540
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    More about this item

    Keywords

    unconventional monetary policy; bank lending channel; euro area; LTRO; credit supply.;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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