Did ECB Liquidity Injections Help the Real Economy in Europe?

Stine Louise Daetz, Marti G. Subrahmanyam, Dragon Y. Tang, Sarah Q. Wang

Research output: Contribution to conferencePaperResearchpeer-review


In an effort to boost the Eurozone economy, the European Central Bank (ECB) launched a plethora of monetary interventions, of which the series of Longer-Term Refinancing Operations (LTROs) was among the most significant. An important measure of the efficacy of these LTRO programs is their impact on non-financial corporations. In this paper, we show that non-financial firms in the Eurozone indeed ended up with more cash as a consequence of the ECB liquidity injections. However, such an increase in cash holdings was not necessarily employed in a productive manner, but as a form of "carry trade", since corporations did not make significant real investments, as a consequence. Rather, firms seem to have taken advantage of the easy credit from both private bank loans and public corporate bonds to hoard the cash (some of which may have been in the form of Treasury bonds of Eurozone periphery countries, carrying a high yield). Also, the cash hoarding effect is stronger for firms situated in the periphery countries. Overall, we conclude that the ECB's unconventional monetary policies have not necessarily helped the real economy in the Eurozone at a time when aggregate demand is weak, as evidenced by weak corporate investments.
Original languageEnglish
Publication date2016
Number of pages70
Publication statusPublished - 2016
EventThe 43rd European Finance Association Annual Meeting (EFA 2016) - BI Norwegian Business School, Oslo, Norway
Duration: 17 Aug 201620 Aug 2016
Conference number: 43


ConferenceThe 43rd European Finance Association Annual Meeting (EFA 2016)
LocationBI Norwegian Business School
Internet address


  • Monetary policy interventions
  • ECB
  • Liquidity
  • Cash holdings
  • Real economy

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