Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/222346
Authors: 
Horst, Maximilian
Neyer, Ulrike
Stempel, Daniel
Year of Publication: 
2020
Series/Report no.: 
DICE Discussion Paper 346
Abstract: 
The Eurosystem's large-scale asset purchases (quantitative easing, QE) induce a strong and persistent increase in excess reserves in the euro area banking sector. These excess reserves are heterogeneously distributed across euro area countries. This paper develops a two-country New Keynesian model { calibrated to represent a high- and a low-liquidity euro area member { to analyze the macroeconomic effects of (QE-induced) heterogeneous increases in excess reserves and deposits in a monetary union. QE triggers economic activity and increases the union-wide consumer price level after a negative preference shock. However, its efficacy is dampened by a reverse bank lending channel that weakens the interest rate channel of QE. These dampening effects are higher in the high-liquidity country. We find similar results in response to a monetary policy shock. Furthermore, we show that a shock in the form of a deposit shift between the two countries, interpreted as capital ight, has negative (positive) effects for the economy of the country receiving (losing) the deposits.
Subjects: 
unconventional monetary policy
quantitative easing (QE)
monetary policytransmission
excess liquidity
credit lending
heterogeneous monetary union
New Keynesianmodel
JEL: 
E51
E52
E58
F41
F45
ISBN: 
978-3-86304-345-2
Document Type: 
Working Paper

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