Employment effects of unconventional monetary policy: Evidence from QE

Abstract

This paper investigates the effect of the Federal Reserve's unconventional monetary policy on employment via a bank lending channel. We find that banks with higher mortgage-backed securities holdings made relatively more loans after the first and third rounds of quantitative easing (QE1 and QE3). While additional volume is concentrated in refinanced mortgages after QE1, increases are driven by newly originated home purchase mortgages and additional commercial and industrial lending after QE3. Using spatial variation, we show that regions with a high share of affected banks experienced stronger employment growth after both QE1 and QE3. While the ability of households to refinance mortgages after QE1 spurred local demand, the resulting additional employment growth was relatively weak and confined to the non-tradable goods sector. In contrast, the increase in employment after QE3 is sizable and can be attributed to the supply of additional credit to firms. To support this finding, we use new confidential loan-level data to show that firms with stronger ties to affected banks increased employment and capital investment more after QE3. Altogether, our findings suggest that unconventional monetary policy can, similar to conventional monetary policy, affect real economic outcomes.

Policy uncertainty, lender of last resort and the real economy

“…We contribute to this strand of the literature by documenting the bank lending channel of LOLR policy. In addition, by showing that policy uncertainty that hits banks propagates to the real economy, we also link to existing work that quantifies the aggregate effects of shocks propagated through the credit channel (see, e.g., Jiménez et al, 2019;Amiti and Weinstein, 2018;Chodorow-Reich, 2014;Huber, 2018;Luck and Zimmermann, 2020).…”

The Impact of Quantitative Easing on Liquidity Creation

“…This disproportional increase in lending appears to come from both real estate lending as well as corporate lending. Similarly, Luck & Zimmermann (2020) find that find that the first round of QE led to mostly an increase in mortgage origination, while in the third round both mortgage lending, as well as commercial and industrial loans increased. Chakraborty et al (2019) also find that high-MBS banks increased mortgage origination disproportionally more.…”

“…3 Yet, evidence on the impact of QE on bank lending is more confounded. Rodnyansky & Darmouni (2017) and Luck & Zimmermann (2020) find that banks increased overall lending after the first and third rounds of quantitative easing, with the first corresponding to mostly an increase in mortgage origination, while the third round to an increase in both real-estate, as well as commercial and industrial loans. Chakraborty et al (2019), on the other hand, find that the increase in mortgage lending crowded-out the origination of commercial loans, the latter actually decreasing as a result of the Fed's asset purchase programs.…”

“…We thus investigate the impact of the Fed's quantitative easing programs on bank liquidity creation using a sample of US bank-holding companies during 2006-2014. In doing so, we study the distributional effects of QE within the balance sheet of financial intermediaries using a difference-in-differences identification strategy that follows Rodnyansky & Darmouni (2017) and Luck & Zimmermann (2020). This strategy exploits the cross-sectional variation in banks' exposure to the Fed's large-scale asset purchase programs.…”

Quantitative Easing In Overcoming the Crisis: Criticism ofQeinthe Monetary System Of Capitalism

“…During these three phases, the Federal Reserve purchased $4.48 trillion worth of financial assets that boosted the money supply in the U.S. economy (Chapman & Kulkarni, 2020;Dinh et al, 2020;Fiebiger & Lavoie, 2020;Schlepper et al, 2020;Todorov, 2020;Sakir, 2015). Factually the policy uses three channels, among others (Kaminska & Zinna, 2020;Luck & Zimmermann, 2020;Yang et al, 2020;Zabala & Prats, 2020;Nam, 2018):…”