Premium
Assessing the Macroeconomic Effects of LTROs during the Great Recession
Author(s) -
CAHN CHRISTOPHE,
MATHERON JULIEN,
SAHUC JEANGUILLAUME
Publication year - 2017
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12421
Subject(s) - gdp deflator , economics , counterfactual thinking , dynamic stochastic general equilibrium , monetary economics , allotment , market liquidity , recession , consumption (sociology) , investment (military) , crunch , credit crunch , real gross domestic product , financial system , monetary policy , macroeconomics , market economy , medicine , social science , philosophy , epistemology , sociology , politics , political science , law , physical therapy
In response to the 2008–2009 crisis, faced with distressed financial intermediaries, the European Central Bank (ECB) embarked in longer term refinancing operations (LTROs) with full allotment. Using an estimated DSGE model with a frictional banking sector, we find that such liquidity injections have played a key role in averting a major credit crunch. A counterfactual analysis suggests that, absent these nonconventional measures, output, consumption, investment, and the GDP deflator would have been 2.5%, 0.5%, 9.7%, and 0.5% lower on average over 2009, respectively.