The effectiveness of non-standard monetary policy in addressing liquidity risk during the financial crisis: The experiences of the Federal Reserve and the European Central Bank

A number of studies sought to measure the effects of non-standard policy on bank funding markets. This paper carries those estimates a step further by looking at the effects of bank funding market stress on the volume of bank lending. By separately modeling loan supply and demand, we determine how n...

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Bibliographic Details
Published in:Journal of economic dynamics & control 2014-06, Vol.43, p.107-129
Main Authors: Carpenter, Seth, Demiralp, Selva, Eisenschmidt, Jens
Format: Article
Language:English
Subjects:
Bank funding volatility
Bank lending
Bank loans
Central banks
Eastern Europe
Economic crisis
Effectiveness studies
European Central Bank
Financial services
Funding
Liquidity
Loans
Monetary policy
Non-standard policy
U.S.A
Volatility
Western Europe
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Summary:A number of studies sought to measure the effects of non-standard policy on bank funding markets. This paper carries those estimates a step further by looking at the effects of bank funding market stress on the volume of bank lending. 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. Our results suggest that non-standard policy measures lowered bank funding volatility in the US and the Euro Area. Lower bank funding volatility in turn increased loan supply in both regions, contributing to sustained lending activity.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2014.03.005