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Unconventional Monetary Policy, Bank Lending, and Security Holdings: The Yield-Induced Portfolio Rebalancing Channel

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  • Paludkiewicz, Karol

Abstract

Exploiting a granular dataset of banks' security holdings I assess the impact of unconventional monetary policy on bank lending and security holdings. Using a difference-in-differences regression setup and holding the security composition of each bank constant at its level in January 2014, well in advance of an anticipation of the ECB's asset purchase program (APP), this paper provides evidence for the presence of a yield-induced portfolio rebalancing channel: Banks experiencing a higher average yield decline of their securities portfolio - induced by unconventional expansionary monetary policy - increase their real sector lending more strongly relative to other banks. The effect is stronger for banks facing many reinvestment decisions. Moreover, I find that banks with a higher average yield decline reduce their overall investments in securities more intensely, especially in those securities that had larger valuation gains. These novel findings suggest that banks target a specific yield level and shift their investments from the securities to the (higher-yielding) credit portfolio. Making use of data on bank-specific TLTRO uptakes, my results do not seem to be driven by alternative, liquidity-driven transmission channels.
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  • Paludkiewicz, Karol, 2018. "Unconventional Monetary Policy, Bank Lending, and Security Holdings: The Yield-Induced Portfolio Rebalancing Channel," Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181669, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc18:181669
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    Cited by:

    1. Hartmann, Philipp & Smets, Frank, 2018. "The first twenty years of the European Central Bank: monetary policy," Working Paper Series 2219, European Central Bank.
    2. Buchholz, Manuel & Schmidt, Kirsten & Tonzer, Lena, 2017. "Do conventional monetary policy instruments matter in unconventional times?," IWH Discussion Papers 12/2017, Halle Institute for Economic Research (IWH).
    3. Tischer, Johannes, 2018. "Quantitative easing, portfolio rebalancing and credit growth: Micro evidence from Germany," Discussion Papers 20/2018, Deutsche Bundesbank.

    More about this item

    Keywords

    Unconventional Monetary Policy; Quantitative Easing; Portfolio Rebalancing.;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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