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 paperResearch

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 languageEnglish
Place of PublicationKøbenhavn
PublisherDanmarks Nationalbank
Number of pages57
Publication statusPublished - 18 May 2018
Externally publishedYes
SeriesDanmarks Nationalbank. Working Papers
Number126
ISSN1602-1193

Keywords

  • Unconventional monetary policy
  • ECB interventions
  • Corporate policies
  • Real economy

Cite this

Daetz, S. L., Subrahmanyam, M. G., Tang, D. Y., & Wang, S. Q. (2018). Can Central Banks Boost Corporate Investment: Evidence from the ECB Liquidity Injections. København: Danmarks Nationalbank. Danmarks Nationalbank. Working Papers, No. 126
Daetz, Stine Louise ; Subrahmanyam, Marti G. ; Tang, Dragon Yongjun ; Wang, Sarah Qian. / Can Central Banks Boost Corporate Investment : Evidence from the ECB Liquidity Injections. København : Danmarks Nationalbank, 2018. (Danmarks Nationalbank. Working Papers; No. 126).
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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.",
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Daetz, SL, Subrahmanyam, MG, Tang, DY & Wang, SQ 2018 'Can Central Banks Boost Corporate Investment: Evidence from the ECB Liquidity Injections' Danmarks Nationalbank, København.

Can Central Banks Boost Corporate Investment : Evidence from the ECB Liquidity Injections. / Daetz, Stine Louise ; Subrahmanyam, Marti G. ; Tang, Dragon Yongjun; Wang, Sarah Qian.

København : Danmarks Nationalbank, 2018.

Research output: Working paperResearch

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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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Daetz SL, Subrahmanyam MG, Tang DY, Wang SQ. Can Central Banks Boost Corporate Investment: Evidence from the ECB Liquidity Injections. København: Danmarks Nationalbank. 2018 May 18.