International and Distributional Impact of Nonconventional Monetary Policy Measures
Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM
- Chair: Benoit Mojon, Banque de France
Credit Supply and Demand in Unconventional Times
AbstractAre credit supply and demand both bank-specific? To answer this question we use novel bank-specific survey data in order to analyze if both credit supply and demand can jointly explain actual bank-level credit growth during the last decade across the Euro Area. We find that both credit supply and demand determine credit growth, in a way that can be both time-varying and bank-specific. Importantly, we find that not only credit supply but also credit demand depend on bank balance sheet strength. We illustrate the importance of bank-specific demand (in addition to supply) by assessing the impact of quantitative easing on lending.
The Credit Channel of Unconventional Monetary Policy: Evidence from the United States
AbstractWe present new evidence of a credit channel of monetary policy for the U.S. banking system. We use confidential data on individual bank loans to businesses from 1997 to 2015 from the Federal Reserve’s Survey of Terms of Business Lending. We find that banks tend to originate loans with lower spreads during periods of low short-term interest rates, especially banks with relatively weak balance sheets. Similarly, we find that, after the substantial expansion of its balance sheet in 2009, increases in Treasury holdings by the Federal Reserve are associated with a decline in loan spreads, especially for banks with relatively weak balance sheets. These results are consistent with a credit channel of unconventional monetary policy whereby monetary stimulus in the form of asset purchases strengthens the balance sheets of firms and banks, thus reducing intermediation costs and promoting bank lending.
Hedger of Last Resort: Evidence from Brazil on Fx Interventions, Local Credit And Global Financial Cycles
AbstractWe analyze whether changes in global financial conditions affect local credit and the real economy in emerging markets and whether local central banks can attenuate such spillovers. For identification, we exploit macro shocks and three matched administrative registers in Brazil: a register of foreign credit flows to Brazilian commercial banks, a credit register from the Central Bank of Brazil, and a matched employer-employee dataset from the Ministry of Labor and Employment. We show that after the announcement of US Quantitative Easing tapering by Ben Bernanke in May 2013, which was associated with massive depreciation and increased volatility of the local currency, domestic commercial banks with larger foreign liabilities reduced the supply of credit to firms and this had real effects in terms of formal employment. However, these negative effects were attenuated in the following months when the Central Bank of Brazil announced a massive intervention program in the FX derivatives market to provide insurance against exchange rate risks (hedger of last resort). On top of these two subsequent shocks, we also analyze a full panel dataset from 2008 to 2015 and identify a broader channel: banks with larger FX liabilities reduce their supply of credit after episodes of US Dollar appreciation. Moreover, these effects are partially mitigated in the two years after the intervention of the central bank confirming that the policy of hedger of last resort has been effective in decreasing local economy exposure to global financial conditions.
- E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
- G2 - Financial Institutions and Services