The Impact of Quantitative Easing on Liquidity Creation
|Title:||The Impact of Quantitative Easing on Liquidity Creation||Authors:||Kapoor, Supriya; Peia, Oana||Permanent link:||http://hdl.handle.net/10197/11435||Date:||Apr-2020||Online since:||2020-07-23T16:02:32Z||Abstract:||We study the effects of the US Federal Reserve's large-scale asset purchase programs during 2008-2014 on bank liquidity creation. Banks create liquidity when they transform the liquid reserves resulted from quantitative easing into illiquid assets. As the composition of banks' loan portfolio affects the amount of liquidity it creates, the impact of quantitative easing on liquidity creation is not a priori clear. Using a difference-in-difference identification strategy, we find that banks that were more exposed to the policy increased lending relative to a control group. However, while the increase in lending was present across all three rounds of quantitative easing, we only find a strong effect on liquidity creation during the last round. This points to a weaker impact of quantitative easing on the real economy during the first two rounds, when affected banks transformed the reserves created through the asset purchase program into less illiquid assets, such as real estate mortgages.||Type of material:||Working Paper||Publisher:||University College Dublin. School of Economics||Start page:||1||End page:||34||Series/Report no.:||UCD Centre for Economic Research Working Paper Series; WP2020/09||Copyright (published version):||2020 the Authors||Keywords:||Large-scale asset purchases; Quantitative easing; Liquidity creation; Bank lending||metadata.dc.subject.classification:||E52; E58; G21||Language:||en||Status of Item:||Not peer reviewed|
|Appears in Collections:||Economics Working Papers & Policy Papers|
Show full item record
This item is available under the Attribution-NonCommercial-NoDerivs 3.0 Ireland. No item may be reproduced for commercial purposes. For other possible restrictions on use please refer to the publisher's URL where this is made available, or to notes contained in the item itself. Other terms may apply.