Can Central Banks Boost Corporate Investment: Evidence from the ECB Liquidity Injections

Stine Louise  Daetz; Marti G.  Subrahmanyam; Dragon Yongjun Tang; Sarah Qian Wang

Can Central Banks Boost Corporate Investment: Evidence from the ECB Liquidity Injections

Stine Louise Daetz, Marti G. Subrahmanyam, Dragon Yongjun Tang, Sarah Qian Wang

Research output: Working paper › Research

Abstract

Can monetary stimulus boost corporate investment? We answer this question by studying ECB's 2011-2012 Longer-Term Refinancing Operations (LTROs), which provided cheap funding to Eurozone banks. We find that, relative to their non-Eurozone counterparts, Eurozone firms invested more after the LTROs. However, riskier banks took more funds from the LTROs, and their uptake is negatively associated with their clients' investment. In other words, firms reduced
investment when their banks took cheap LTRO funds from the ECB. Overall, our results highlight the difficulty of boosting investment by injecting liquidity into the banking system, especially with impaired bank balance sheets.

Original language	English
Place of Publication	København
Publisher	Danmarks Nationalbank
Number of pages	57
Publication status	Published - 18 May 2018
Externally published	Yes

Series	Danmarks Nationalbank. Working Papers
Number	126
ISSN	1602-1193

Keywords

Unconventional monetary policy
ECB interventions
Corporate policies
Real economy

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http://www.nationalbanken.dk/da/publikationer/Documents/2018/05/Working%20Paper%20126_2018.pdfLicence: Unspecified

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Cite this

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title = "Can Central Banks Boost Corporate Investment: Evidence from the ECB Liquidity Injections",

abstract = "Can monetary stimulus boost corporate investment? We answer this question by studying ECB's 2011-2012 Longer-Term Refinancing Operations (LTROs), which provided cheap funding to Eurozone banks. We find that, relative to their non-Eurozone counterparts, Eurozone firms invested more after the LTROs. However, riskier banks took more funds from the LTROs, and their uptake is negatively associated with their clients' investment. In other words, firms reducedinvestment when their banks took cheap LTRO funds from the ECB. Overall, our results highlight the difficulty of boosting investment by injecting liquidity into the banking system, especially with impaired bank balance sheets.",

keywords = "Unconventional monetary policy, ECB interventions, Corporate policies, Real economy, Unconventional monetary policy, ECB interventions, Corporate policies, Real economy",

author = "Daetz, {Stine Louise} and Subrahmanyam, {Marti G.} and Tang, {Dragon Yongjun} and Wang, {Sarah Qian}",

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AU - Subrahmanyam, Marti G.

AU - Tang, Dragon Yongjun

AU - Wang, Sarah Qian

PY - 2018/5/18

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N2 - Can monetary stimulus boost corporate investment? We answer this question by studying ECB's 2011-2012 Longer-Term Refinancing Operations (LTROs), which provided cheap funding to Eurozone banks. We find that, relative to their non-Eurozone counterparts, Eurozone firms invested more after the LTROs. However, riskier banks took more funds from the LTROs, and their uptake is negatively associated with their clients' investment. In other words, firms reducedinvestment when their banks took cheap LTRO funds from the ECB. Overall, our results highlight the difficulty of boosting investment by injecting liquidity into the banking system, especially with impaired bank balance sheets.

AB - Can monetary stimulus boost corporate investment? We answer this question by studying ECB's 2011-2012 Longer-Term Refinancing Operations (LTROs), which provided cheap funding to Eurozone banks. We find that, relative to their non-Eurozone counterparts, Eurozone firms invested more after the LTROs. However, riskier banks took more funds from the LTROs, and their uptake is negatively associated with their clients' investment. In other words, firms reducedinvestment when their banks took cheap LTRO funds from the ECB. Overall, our results highlight the difficulty of boosting investment by injecting liquidity into the banking system, especially with impaired bank balance sheets.

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KW - Real economy

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KW - Real economy

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