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ORCID

Olli-Matti Laine 0000-0002-2983-4135

Keywords

unconventional monetary policy; credit supply; TLTRO; bank lending

Abstract

This paper studies the effect of central banks’ targeted refinancing operations on bank lending. It utilizes data from the European Central Bank’s targeted longer-term refinancing operations (TLTROs) together with monthly bank level balance sheet data from multiple countries. The effect of targeted policy is identified utilizing the institutional setting that provides natural instrumental variables and a proxy for credit demand. Unlike previous papers, this paper studies the effects on corporate loans and loans for consumption separately. The cumulative effect of TLTROs on participating banks’ stock of corporate loans is estimated to be significant (about 20 per cent). However, the effect on lending for consumption is found close to zero. Furthermore, the positive effects on corporate loans are found to be driven by crisis countries suggesting that the effectiveness of monetary policy depends on the economic conditions. The paper also finds some evidence that the effect on government bond purchases is negative. This result is very different from the earlier results regarding non-targeted liquidity operations.

Acknowledgments

I am grateful to Eeva Kerola, Tomi Kortela, Juha Kilponen, Mikael Juselius, Miguel García- Posada, Zuzana Fungáčová, Mikko Mäkinen, Hanna Freystätter, Risto Herrala, Gregory Moore and seminar participants at the Bank of Finland and in the Research Workshop of the MPC Task Force on Banking Analysis for Monetary Policy for their helpful comments. This paper represents the views of the author which are not necessarily those of the Bank of Finland. A previous name of this paper was “The Effect of TLTRO-II on Bank Lending”.

First Page

25

Last Page

43

Page Count

19

Received Date

31 March 2021

Revised Date

11 May 2021

Accept Date

18 May 2021

Online Available Date

18 June 2021

DOI

10.7172/2353-6845.jbfe.2021.1.3

JEL Code

E44; E51; E52; G21

Publisher

University of Warsaw

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