The impact of quantitative easing on liquidity creation

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: UCD Centre for Economic Research Working Paper Series ; No. WP20/09

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Central Banks and Their Policies ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: Large-scale asset purchases ; Quantitative easing ; Liquidity creation ; Bank lending

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kapoor, Supriya ; Peia, Oana
• Event: Veröffentlichung
• (who): University College Dublin, UCD Centre for Economic Research
• (where): Dublin
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/228189
• Last update: 10.03.2025, 11:42 AM CET