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

Author

Listed:
  • Saidi, Farzad
  • Bittner, Christian
  • Rodnyansky, Alexander
  • Timmer, Yannick

Abstract

We study jointly expansionary rate-based monetary policy and quantitative easing, despite their concurrent implementation around the world, by exploiting the introduction of negative monetary-policy rates in a fragmented euro area, alongside cross-sectional heterogeneity in banks’ balance sheets. Banks more exposed to quantitative easing are less likely to increase credit supply when they incur higher funding costs due to a zero lower bound (ZLB) on deposit rates. Using administrative data from Germany, we also uncover that German banks rebalance their interbank lending from safe to risky countries, and that the ZLB on deposit rates compromised the effectiveness of quantitative easing.

Suggested Citation

  • Saidi, Farzad & Bittner, Christian & Rodnyansky, Alexander & Timmer, Yannick, 2023. "Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area," CEPR Discussion Papers 17827, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:17827
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    More about this item

    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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