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Employment Effects of Unconventional Monetary Policy : Evidence from QE

Author

Listed:
  • Stephan Luck
  • Thomas Zimmermann

Abstract

This paper investigates the effect of the Federal Reserve's unconventional monetary policy on employment via a bank lending channel. We find that banks with higher mortgage-backed securities holdings issued relatively more loans after the first and third rounds of quantitative easing (QE1 and QE3). While additional volume is concentrated in refinanced mortgages after QE1, increases are driven by newly originated home purchase mortgages and additional commercial and industrial lending after QE3. Using spatial variation, we show that regions with a high share of affected banks experienced stronger employment growth after both, QE1 and QE3. While the ability of households to refinance mortgages after QE1 spurred local demand, the resulting additional employment growth was relatively weak and confined to the non-tradable goods sector. In contrast, the increase in overall employment after QE3 is sizable and can be attributed to the supply of additional credit to firms. To s upport this finding, we use new confidential loan-level data to show that firms with stronger ties to affected banks increased employment and capital investment more after QE3. Altogether, our findings suggest that unconventional monetary policy can, similar to conventional monetary policy, affect real economic outcomes.

Suggested Citation

  • Stephan Luck & Thomas Zimmermann, 2018. "Employment Effects of Unconventional Monetary Policy : Evidence from QE," Finance and Economics Discussion Series 2018-071, Board of Governors of the Federal Reserve System (US).
  • Handle: RePEc:fip:fedgfe:2018-71
    DOI: 10.17016/FEDS.2018.071
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    File URL: https://www.federalreserve.gov/econres/feds/files/2018071pap.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Cumming, Fergus, 2018. "Mortgages, cash-flow shocks and local employment," Bank of England working papers 773, Bank of England.
    2. Martina Jasova & Caterina Mendicino & Dominik Supera, 2018. "Rollover Risk and Bank Lending Behavior: Evidence from Unconventional Central Bank Liquidity," 2018 Meeting Papers 500, Society for Economic Dynamics.
    3. Goetz, Martin, 2019. "Financing conditions and toxic emissions," SAFE Working Paper Series 254, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    4. Kenneth N. Kuttner, 2018. "Outside the Box: Unconventional Monetary Policy in the Great Recession and Beyond," Department of Economics Working Papers 2018-04, Department of Economics, Williams College.
    5. repec:eee:jbfina:v:99:y:2019:i:c:p:222-236 is not listed on IDEAS
    6. Arikan, Cengiz & Yalcin, Yeliz, 2017. "Do The Countries’ Monetary Policies Have Spatial Impact?," MPRA Paper 83407, University Library of Munich, Germany.

    More about this item

    Keywords

    Bank Lending ; Central Banking ; Employment ; Financial Crisis ; Quantitative Easing ; Real Effects ; Unconventional Monetary Policy;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G00 - Financial Economics - - General - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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