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Whatever it takes: The Real Effects of Unconventional Monetary Policy

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  • Acharya, Viral V
  • Eisert, Tim
  • Eufinger, Christian
  • Hirsch, Christian

Abstract

Launched in Summer 2012, the European Central Bank (ECB)'s Outright Monetary Transactions (OMT) program indirectly recapitalized European banks through its positive impact on periphery sovereign bonds. However, the stability reestablished in the banking sector did not fully translate into economic growth. We document zombie lending by banks that remained undercapitalized even post-OMT. In turn, firms receiving loans used these funds not to undertake real economic activity such as employment and investment but to build up cash reserves. Creditworthy firms in industries with a high zombie firm prevalence suffered significantly from this credit misallocation, which further slowed down the economic recovery.

Suggested Citation

  • Acharya, Viral V & Eisert, Tim & Eufinger, Christian & Hirsch, Christian, 2017. "Whatever it takes: The Real Effects of Unconventional Monetary Policy," CEPR Discussion Papers 12005, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12005
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:jimfin:v:86:y:2018:i:c:p:112-130 is not listed on IDEAS
    2. Sven Steinkamp & Aaron Tornell & Frank Westermann, 2017. "The Euro Area's Common Pool Problem Revisited: Has the Single Supervisory Mechanism Ameliorated Forbearance and Evergreening," CESifo Working Paper Series 6670, CESifo Group Munich.
    3. Dan Andrews & Filippos Petroulakis, 2017. "Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe," OECD Economics Department Working Papers 1433, OECD Publishing.
    4. repec:eee:dyncon:v:91:y:2018:i:c:p:257-288 is not listed on IDEAS
    5. GOTO Yasuo & Scott WILBUR, 2017. "Efficiency among Japanese SMEs: In the context of the zombie firm hypothesis and firm size," Discussion papers 17123, Research Institute of Economy, Trade and Industry (RIETI).
    6. Óscar Arce & Ricardo Gimeno & Sergio Mayordomo, 2017. "Making room for the needy: the credit-reallocation effects of the ECB’s corporate QE," Working Papers 1743, Banco de España;Working Papers Homepage.
    7. repec:eee:jebusi:v:95:y:2018:i:c:p:26-46 is not listed on IDEAS
    8. Sven Steinkamp & Aaron Tornell & Frank Westermann, 2018. "Evergreening in the Euro Area: Facts and Explanation," Working Papers 113, Institute of Empirical Economic Research, Osnabrueck University.
    9. Laura Blattner & Luisa Farinha & Francisca Rebelo, 2017. "When Losses Turn Into Loans: The Cost of Undercapitalized Banks," 2017 Papers pbl215, Job Market Papers.
    10. repec:eee:jfinec:v:129:y:2018:i:2:p:268-286 is not listed on IDEAS

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