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The effects of the monetary policy response to the COVID-19 pandemic: preliminary evidence from a pilot study using Austrian bank-level data

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Abstract
The Eurosystem’s monetary policy response to the COVID-19 crisis has been swift and powerful. Its policy package contained both extensions and enlargements of existing unconventional monetary policy measures, including the further loosening of their respective conditions. The Eurosystem also introduced new measures to meet the extraordinary challenge posed by the economic fallout of the COVID-19 pandemic. In this paper, we provide a pilot study to analyze the credit supply effects of one important building block of the monetary policy rescue package: the Eurosystem’s targeted longer-term refinancing operations (TLTROs). The modalities and conditions of the current vintage of TLTRO, TLTRO III, were significantly relaxed in spring 2020 in response to the COVID-19 pandemic. We draw on Austrian bank-level data and exploit an instrumental variable strategy to approximate the effects of the June 2020 TLTRO uptake on banks’ supply of new loans. We find evidence for an unambiguously positive effect of TLTRO participation on the supply of new loans in Austria. The estimated credit supply elasticity, however, differs substantially (ranging between 0.26 and 1.00), depending on the specification and caveats considered.

Suggested Citation

  • Claudia Kwapil & Kilian Rieder, 2021. "The effects of the monetary policy response to the COVID-19 pandemic: preliminary evidence from a pilot study using Austrian bank-level data," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/20-Q1/, pages 131-152.
    • Handle: RePEc:onb:oenbmp:y:2021:i:q4/20-q1/21:b:6
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    References listed on IDEAS

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    Cited by:

    1. Marcel Barmeier & Juraj Falath & Alena Kissova & Adriana Lojschova, 2023. "Impact of TLTRO III on bank lending: The Slovak experience," Working and Discussion Papers WP 2/2023, Research Department, National Bank of Slovakia.
    2. Sharon Lai & Kevin Lane & Laura Nunn, 2022. "The Term Funding Facility: Has It Encouraged Business Lending?," RBA Research Discussion Papers rdp2022-07, Reserve Bank of Australia.

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    More about this item

    Keywords

    COVID-19; monetary policy; targeted longer-term refinancing operations; credit supply;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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