IDEAS home Printed from https://ideas.repec.org/p/fip/fedgfe/2013-34.html
   My bibliography  Save this paper

The effectiveness of the non-standard policy measures during the financial crises: the experiences of the Federal Reserve and the European Central Bank

Author

Listed:
  • Seth B. Carpenter
  • Selva Demiralp
  • Jens Eisenschmidt

Abstract

A growing number of studies have sought to measure the effects of non-standard policy on bank funding markets. The purpose of this paper is to carry those estimates a step further by looking at the effects of bank funding market stress on the volume of bank lending, using a simultaneous equation approach. By separately modeling loan supply and demand, we determine how non-standard central bank measures affected bank lending by reducing stress in bank funding markets. We focus on the Federal Reserve and the European Central Bank. Our results suggest that non-standard policy measures lowered bank funding volatility. Lower bank funding volatility in turn increased loan supply in both regions, contributing to sustain lending activity. We consider this as strong evidence for a "bank liquidity risk channel", operative in crisis environments, which complements the usual channels of transmission of monetary policy.

Suggested Citation

  • Seth B. Carpenter & Selva Demiralp & Jens Eisenschmidt, 2013. "The effectiveness of the non-standard policy measures during the financial crises: the experiences of the Federal Reserve and the European Central Bank," Finance and Economics Discussion Series 2013-34, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2013-34
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/feds/2013/201334/201334abs.html
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/feds/2013/201334/201334pap.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Heiko Hesse & Nathaniel Frank, 2009. "The Effectiveness of Central Bank Interventions During the First Phase of the Subprime Crisis," IMF Working Papers 09/206, International Monetary Fund.
    2. Evan Gatev & Philip E. Strahan, 2006. "Banks' Advantage in Hedging Liquidity Risk: Theory and Evidence from the Commercial Paper Market," Journal of Finance, American Finance Association, vol. 61(2), pages 867-892, April.
    3. Acharya, Viral V. & Skeie, David, 2011. "A model of liquidity hoarding and term premia in inter-bank markets," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 436-447.
    4. Seth Carpenter & Selva Demiralp, 2008. "The Liquidity Effect in the Federal Funds Market: Evidence at the Monthly Frequency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 1-24, February.
    5. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
    6. Jose M. Berrospide & Rochelle M. Edge, 2010. "The effects of bank capital on lending: What do we know, and what does it mean?," CAMA Working Papers 2010-26, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    7. Stephan Fahr & Roberto Motto & Massimo Rostagno & Frank Smets & Oreste Tristani, 2013. "A monetary policy strategy in good and bad times: lessons from the recent past," Economic Policy, CEPR;CES;MSH, vol. 28(74), pages 243-288, April.
    8. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    9. Neven, Damien & Roller, Lars-Hendrik, 1999. "An aggregate structural model of competition in the European banking industry," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 1059-1074, October.
    10. Douglas W. Diamond & Raghuram G. Rajan, 2000. "A Theory of Bank Capital," Journal of Finance, American Finance Association, vol. 55(6), pages 2431-2465, December.
    11. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and Banking in a DSGE Model of the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 107-141, September.
    12. Michele Lenza & Huw Pill & Lucrezia Reichlin, 2010. "Monetary policy in exceptional times," Economic Policy, CEPR;CES;MSH, vol. 25, pages 295-339, April.
    13. Jose M. Berrospide & Rochelle M. Edge, 2010. "The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?," International Journal of Central Banking, International Journal of Central Banking, vol. 6(34), pages 1-50, December.
    14. Coval, Joshua D. & Thakor, Anjan V., 2005. "Financial intermediation as a beliefs-bridge between optimists and pessimists," Journal of Financial Economics, Elsevier, vol. 75(3), pages 535-569, March.
    15. Tapking, Jens & Eisenschmidt, Jens, 2009. "Liquidity risk premia in unsecured interbank money markets," Working Paper Series 1025, European Central Bank.
    16. Hancock, Diana & Laing, Andrew J. & Wilcox, James A., 1995. "Bank capital shocks: Dynamic effects on securities, loans, and capital," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 661-677, June.
    17. Altunbas, Yener & Gambacorta, Leonardo & Marques-Ibanez, David, 2010. "Bank risk and monetary policy," Journal of Financial Stability, Elsevier, vol. 6(3), pages 121-129, September.
    18. Jose M. Berrospide & Rochelle M. Edge, 2010. "The effects of bank capital on lending: what do we know, and what does it mean?," Finance and Economics Discussion Series 2010-44, Board of Governors of the Federal Reserve System (U.S.).
    19. Nan-Kuang Chen & Hung-Jen Wang, 2008. "Identifying the Demand and Supply Effects of Financial Crises on Bank Credit—Evidence from Taiwan," Southern Economic Journal, Southern Economic Association, vol. 75(1), pages 26-49, July.
    20. Stefano Puddu & Andreas Waelchli, 2015. "TAF Effect on Liquidity Risk Exposure," IRENE Working Papers 15-07, IRENE Institute of Economic Research.
    21. Carpenter, Seth & Demiralp, Selva, 2012. "Money, reserves, and the transmission of monetary policy: Does the money multiplier exist?," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 59-75.
    22. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Diana Hancock & Wayne Passmore, 2015. "How Does the Federal Reserve's Large-Scale Asset Purchases (LSAPs) Influence Mortgage-Backed Securities (MBS) Yields and U.S. Mortgage Rates?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(4), pages 855-890, November.
    2. Stefan Behrendt, 2016. "Taking Stock - Credit Measures in Monetary Transmission," Jena Economic Research Papers 2016-002, Friedrich-Schiller-University Jena.
    3. Alin-Marius ANDRIEȘ & Florentina IEȘAN-MUNTEAN & Simona NISTOR, 2016. "The effectiveness of policy interventions in CEE countries," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 7, pages 93-124, June.
    4. Brousseau, Vincent & Nikolaou, Kleopatra & Pill, Huw, 2014. "Modeling Money Market Spreads: What Do We Learn about Refinancing Risk?," Finance and Economics Discussion Series 2014-112, Board of Governors of the Federal Reserve System (U.S.).
    5. Güntner, Jochen H.F., 2015. "The federal funds market, excess reserves, and unconventional monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 53(C), pages 225-250.
    6. repec:aic:revebs:y:2017:j:19:melnicf is not listed on IDEAS
    7. Ho, Steven Wei & Zhang, Ji & Zhou, Hao, 2014. "Hot money and quantitative easing: the spillover effect of U.S. monetary policy on Chinese housing, equity and loan markets," Globalization and Monetary Policy Institute Working Paper 211, Federal Reserve Bank of Dallas.
    8. Rita Babihuga & Marco Spaltro, 2014. "Bank Funding Costs for International Banks," IMF Working Papers 14/71, International Monetary Fund.
    9. Wolfinger, Julia & Köhler, Ekkehard, 2017. "The Draghi-Put: When unexpected words on joint liability speak louder than actions," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168265, Verein für Socialpolitik / German Economic Association.
    10. Hancock, Diana & Passmore, Wayne, 2014. "How the Federal Reserve's Large-Scale Asset Purchases (LSAPs) Influence Mortgage-Backed Securities (MBS) Yields and U.S. Mortgage Rates," Finance and Economics Discussion Series 2014-12, Board of Governors of the Federal Reserve System (U.S.).
    11. repec:prs:ecsecs:estat_0336-1454_2017_num_494_1_10781 is not listed on IDEAS
    12. Krainer, Robert E., 2014. "Monetary policy and bank lending in the Euro area: Is there a stock market channel or an interest rate channel?," Journal of International Money and Finance, Elsevier, vol. 49(PB), pages 283-298.
    13. repec:bkr:journl:v:77:y:2018:i:1:p:71-107 is not listed on IDEAS
    14. Nicola Acocella, "undated". "The theoretical roots of EMU institutions and policies during the crisis," Working Papers 126/14, Sapienza University of Rome, Metodi e modelli per l'economia, il territorio e la finanza MEMOTEF.
    15. Lubomira Gertler, 2015. "Interactions of Unconventional Monetary Policy Measures with the Euro Area Yield Curve," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 65(2), pages 106-126, March.

    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2013-34. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (FRB Librarian). General contact details of provider: http://edirc.repec.org/data/frbgvus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.