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 |
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| Affiliation: | 1. Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551, USA;2. Koc University, Rumeli Feneri Yolu, Sariyer, Istanbul 34450, Turkey;3. European Central Bank, Monetary Policy Strategy Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany;1. EBC, CentER and Economics Department, Tilbury University;2. Cass Business School, City University London, CentER and Economics Department, Tilburg University, and CEPR;3. EBC, CentER and Economics Department, Tilburg University;1. British Geological Survey, Maclean Building, Wallingford OX10 8BB, UK;2. Centre of Ecology and Hydrology, Maclean Building, Wallingford OX10 8BB, UK;1. Atal Bihari Vajpayee-Indian Institute of Information Technology and Management, Gwalior, India;2. Tata Consultancy Services,Noida, India;1. ISEG/UL – University of Lisbon, Department of Economics, Portugal;2. REM – Research in Economics and Mathematics, UECE – Research Unit on Complexity and Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal;3. Centre for Globalization and Governance, Nova School of Business and Economics, Campus Campolide, Lisbon 1099-032, Portugal |
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| Abstract: | 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. |
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| Keywords: | Bank lending Non-standard policy Bank funding volatility |
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