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NATIONAL BUREAU OF ECONOMIC RESEARCH
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Daniel Teichmann

Goethe University Frankfurt
House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt 60323
Germany

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Institutional Affiliation: Goethe University Frankfurt

NBER Working Papers and Publications

November 2019Does the Lack of Financial Stability Impair the Transmission of Monetary Policy?
with Viral V. Acharya, Björn Imbierowicz, Sascha Steffen: w26479
We investigate the transmission of central bank liquidity to bank deposits and loan spreads in Europe over the period from January 2006 to June 2010. We find evidence consistent with an impaired transmission channel due to bank risk. Central bank liquidity does not translate into lower loan spreads for high-risk banks for maturities beyond one year, even as it lowers deposit spreads for both high-risk and low-risk banks. This adversely affects the balance sheets of high-risk bank borrowers, leading to lower payouts, capital expenditures and employment. Overall, our results suggest that banks’ capital constraints at the time of an easing of monetary policy pose a challenge to the effectiveness of the bank-lending channel and the central bank's lender-of-last-resort function.

Published: Viral V. Acharya & Björn Imbierowicz & Sascha Steffen & Daniel Teichmann, 2020. "Does the lack of financial stability impair the transmission of monetary policy?," Journal of Financial Economics, .

 
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