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- Title
Unintended Consequences of Central Bank Lending in Financial Crises.
- Authors
van der Kwaak, Christiaan
- Abstract
I investigate the macroeconomic impact of central bank funding becoming a more attractive funding source to financial intermediaries in times of crisis. I show that the requirement to pledge collateral has a contractionary effect on private credit, everything else equal, and thereby reduces the expansionary effect that such lending otherwise has. I use an estimated New Keynesian model with financial frictions to show that the collateral effect explains the limited growth of Italian banks' private credit in response to the European Central Bank's three-year longer-term refinancing operations. Finally, I explore whether changes in lending policy can offset the cumulative negative effects from the collateral effect.
- Subjects
BANK loans; EUROPEAN Central Bank; FINANCIAL crises; CENTRAL banking industry; LOANS; FINANCIAL institutions; PRIVATE banks
- Publication
Economic Journal, 2024, Vol 134, Issue 658, p728
- ISSN
0013-0133
- Publication type
Article
- DOI
10.1093/ej/uead078