Life Below Zero: Bank Lending Under Negative Policy Rates
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In this paper, the authors studied the transmission of negative monetary-policy rates via the lending behavior of banks and found that banks with different reliance on deposit funding experience a different pass-through of negative policy rates.Abstract:
This paper studies the transmission of negative monetary-policy rates via the lending behavior of banks. Unlike for positive rates, the transmission of negative rates depends on banks' funding structure. High-deposit banks take on more risk and lend less than low-deposit banks. Part of the risk taking comes in the form of new syndicated loans to risky firms without such loans previously, and it is limited to poorly-capitalized banks. Safe borrowers switch from high-deposit to low-deposit banks. The new risky borrowers appear financially constrained, and use the new funding to invest. For identification, we rely on a difference-in-differences approach. Banks with different reliance on deposit funding experience a different pass-through of negative policy rates. To isolate borrowers from interest-rate changes, we use lenders located in a different currency zone. A placebo at the time when policy rates fall -- but are still positive -- shows no effect. The results point to distributional consequences of negative policy rates with potential risks to financial stability.read more
Citations
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Whatever It Takes: The Real Effects of Unconventional Monetary Policy
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Whatever It Takes: The Real Effects of Unconventional Monetary Policy
TL;DR: In this article, the authors show that banks that benefited from the OMT announcement increased their overall loan supply, but this supply was mostly targeted towards low-quality firms with pre-existing lending relationships with these banks.
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References
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How Much Should We Trust Differences-In-Differences Estimates?
TL;DR: In this article, the authors randomly generate placebo laws in state-level data on female wages from the Current Population Survey and use OLS to compute the DD estimate of its "effect" as well as the standard error of this estimate.
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Agency Costs, Net Worth, And Business Fluctuations
Ben S. Bernanke,Mark Gertler +1 more
TL;DR: The authors constructs a simple neoclassical model of intrinsic business cycle dynamics in which borrowers' balance sheet positions play an important role and shows that the agency costs of undertaking physical investments are inversely related to the entrepreneur's/borrower's net worth.
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Inside the Black Box: The Credit Channel of Monetary Policy Transmission
TL;DR: The credit channel theory of monetary policy transmission holds that informational frictions in credit markets worsen during tight money periods and the resulting increase in the external finance premium enhances the effects of monetary policies on the real economy as discussed by the authors.
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Financial Intermediation, Loanable Funds, and The Real Sector
Bengt Holmstrom,Jean Tirole +1 more
TL;DR: In this article, an incentive model of financial intermediation in which firms as well as intermediaries are capital constrained is studied, and how the distribution of wealth across firms, intermediaries, and uninformed investors affects investment, interest rates, and the intensity of monitoring.