Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/203670 
Year of Publication: 
2019
Series/Report no.: 
DICE Discussion Paper No. 325
Publisher: 
Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE), Düsseldorf
Abstract: 
In March 2015, the Eurosystem launched its QE-programme. The asset purchases induced a rapid and strong increase in excess reserves, implying a structural liquidity surplus in the euro area banking sector. Against this background, the first part of this paper analyses the Eurosystem's liquidity management during normal times, crisis times and times of too low in ation. With a focus on the latter, the second part of this paper develops a relatively simple theoretical model in which banks operate under a structural liquidity surplus. The model shows that increasing excess reserves have no or even a contractionary impact on bank loan supply. As the newly created excess reserves are heterogeneously distributed across euro area countries, the impact of QE on bank loan supply may differ across countries. Moreover, we derive implications for monetary policy implementation. Increases in the central bank's main refinancing rate as well as in the minimum reserve ratio and decreases in the central bank's deposit rate develop expansionary effects on loan supply - contrary to the case in which banks face a structural liquidity deficit.
Subjects: 
monetary policy
quantitative easing (QE)
monetary policy implementation
excess liquidity
loan supply
bank lending channel
JEL: 
E43
E51
E52
E58
G21
ISBN: 
978-3-86304-324-7
Document Type: 
Working Paper

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