Unconventional monetary policies and bank credit in the Eurozone: An events study approach

• Author: Joana Batista,Luis Filipe Martins,Alexandra Ferreira‐Lopes
• Date: 01 July 2019
• DOI: http://doi.org/10.1002/ijfe.1712
• Published date: 01 July 2019

Received: 4 May 2018 Revised: 31 July 2018 Accepted: 10 September 2018

DOI: 10.1002/ijfe.1712

RESEARCH ARTICLE

Unconventional monetary policies and bank credit in the

Eurozone: An events study approach

Luis Filipe Martins1Joana Batista2Alexandra Ferreira-Lopes3

1ISCTE-IUL, BRU-IUL, and

CIMS-University of Surrey

2RSM US LLP

3ISCTE-IUL, BRU-IUL, and CEFAGE-UBI

Correspondence

Luis Filipe Martins, ISCTE-Instituto

Universitario de Lisboa, Lisboa, Portugal.

Email: luis.martins@iscte-iul.pt

Funding information

FCT - Fundação para a Ciência e a

Tecnologia (National Science and

Technology Foundation),Grant/Award

Number: UID/GES/00315/2013

JEL Classification: C23; C51; E51; E52; E58

Abstract

We study the impact of the unconventional monetary policies implemented by

the European Central Bank on bank credit to Eurozone general governments

and to households. The database is a macro panel of the 19 Eurozone countries

over the period between January 2008 and May 2016. Using an events study

approach, we create two dummy variables that reflectthe timing and changes of

unconventional and conventional monetary policy measures, which we use as

key determinants in panel regressionmodels. Our results suggest that unconven-

tional monetary policies have a positivelagg ed impact on bank credit,with much

more to general governments (1.2% per month) than to household consumers

(0.2%). All other variables in the models, such as the interest rates, the Indus-

trial Production Index, and the inflation rate have the expected estimated signs.

Finally, we estimate the unobserved country-specific fixed effects measured in

terms of credit growth rates. The monthly growth ratesof loans to households in

Ireland are about 0.74% below the average country,which is closely related to its

post-2008 banking crisis. Moreover, the net purchases' impact under the Public

Sector Purchase Programme of loans of Monetary Financial Institutions to gen-

eral governments was much larger for countries that were hit by the financial

and economic crisis.

KEYWORDS

bank credit, Eurozone, events study approach, panel data, quantitative easing, unconventional

monetary policy

1INTRODUCTION

The present work analyses the impact of unconventional

monetary policies, implemented by the European Central

Bank (ECB), on bank credit in the 19 Eurozone coun-

tries, using an events study approach. We model the total

amount of credit concession, the loans to Eurozone gen-

eral governments, and also the credit to households (total,

as well as disaggregated for consumer credit and house

purchase credit).

In order to achieve low and stable inflation rates, the

ECB and other central banks alike usually use conven-

tional monetary instruments, for example, the reference

interest rate. However, in the aftermath of the finan-

cial crisis, the reference interest rate in many developed

economies reached the Zero Lower Bound (ZLB), due

to low inflation and anemic growth. Additionally, there

were also disruptions in financial markets, generating

losses and affecting liquidity. Conventional monetary pol-

icy measures started to be ineffective in stimulating eco-

nomic growth and in providing financial stability, which

made central banks think of new policy tools, named

unconventional monetary policies. The main transmission

mechanism between monetary policy instruments (e.g.,

1210 © 2018 John Wiley & Sons, Ltd. wileyonlinelibrary.com/journal/ijfe IntJ Fin Econ. 2019;24:1210–1224.