Monetary policy transmission mechanisms › pub › conferences › shared › pdf › ...2019/07/01 · Monetary policy transmission mechanisms The opinions in this presentation

Monetary policy transmission mechanisms

The opinions in this presentation are those of the authors and do not necessarily reflect the views of the European Central Bank and the Eurosystem

Frankfurt am Main, 3 July 2019

Carlo Altavilla European Central Bank

13th ECB Central Banking Seminar: Monetary policy in the euro area Frankfurt am Main, 1 to 5 July 2019

2

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

-1

0

1

2

3

4

5

6Eonia

MRO

Deposit rate

Marginal Lending Rate

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

0

200

400

600

800

1000

1200

1400

1600

1800

Excess Liquidity Interest rate corridor (Current Account + Deposit Facilities - Reserve requirements)

Altavilla Carlo - ECB Monetary policy transmission mechanisms

Interest rate corridor and excess liquidity

Source: ECB. Source: ECB.

Channels of transmission

3


Channels of Transmission

1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y-0.5

0

0.5

1

1.5

01 January 2013 14 August 2014 16 January 2017

• Term structure of OIS yields at different dates (percentages per annum)

Standards Measures (interest rate)

Interest rate, Confidence, Exchange Rate, Expectations

Non-Standards Measures (QE, NIRP, TLTRO, FG)

Signalling Direct pass-through Portfolio rebalance Risk-taking, Deposit channel

New Policy instruments and toolkit Challenges to monetary policy normalisation

Source: Thomson Reuters, Bloomberg and ECB calculations.

High-frequency database – Governing Council dates

4

Altavilla, Brugnolini, Gürkaynak, Motto, Ragusa (2019) "Measuring euro area monetary policy," ECB WP 2281


Euro Area Monetary Policy Database (EA-MPD): High-frequency database that covers all official policy actions across different maturities (for several asset classes). Available on-line: https://www.ecb.europa.eu/pub/pdf/annex/Dataset_EA-MPD.xlsx

The Footprint of monetary policy measures

5

Altavilla, Brugnolini, Gürkaynak, Motto, Ragusa (2019) "Measuring euro area monetary policy," ECB WP 2281


Outline

6


The transmission of standard measures

The transmission of non-standard measures APP NIRP TLTRO

Impact on GDP and Inflation

Conclusions

Outline

7





Conclusions

Transmission mechanism – How interest rates affect prices

8


Official interest rates

Price developments

Supply and demand in goods and labour markets

Expectations Money market rates

Exchange rates Bank rates Asset prices Money, credit

Wage and price-setting

Import prices Domestic prices

Outline

9





Conclusions

APP announcement: intraday data, 10-year yields Germany France

Italy Spain

10

09 10 11 12 13 14 15 16 17 18 190.4

0.45

0.5

0.55

0.6

0.65

trading hours

y

09 10 11 12 13 14 15 16 17 18 190.55

0.6

0.65

0.7

0.75

trading hours

09 10 11 12 13 14 15 16 17 18 191.6

1.65

1.7

1.75

1.8

trading hours09 10 11 12 13 14 15 16 17 18 1

1.35

1.4

1.45

1.5

1.55

1.6

trading hours


Altavilla, Carboni, Motto, 2015. "Asset purchase programmes and financial markets: lessons from the euro area," ECB WP

Monetary policy announcement – high frequency effect on banks

11

-20 -10 0 10 20

-2

0

2

change in stock prices

chan

ge in

CD

S

SMP - 10 May 2010

-15 -10 -5 0 5 10 15-0.5

0

0.5


chan

ge in

CD

S

OMT - 26 July 2012

-6 -4 -2 0 2 4 6-0.2

0

0.2


chan

ge in

CD

S

TLTRO - 5 June 2014

-10 -5 0 5 10-0.5

0

0.5


chan

ge in

CD

S

NIR - 4 September 2014

-10 -5 0 5 10-0.2

0

0.2


chan

ge in

CD

S

APP - 22 January 2015

-10 -5 0 5 10

-0.1

0

0.1


chan

ge in

CD

S

APP - 3 December 2015

-15 -10 -5 0 5 10 15-0.2

0

0.2


chan

ge in

CD

S

APP - 10 March 2016

-10 -5 0 5 10

-0.2

0

0.2


chan

ge in

CD

SAPP - 8 December 2016


Altavilla Carlo & Miguel Boucinha & José-Luis Peydró, 2018. "Monetary policy and bank profitability in a low interest rate environment," Economic Policy, vol. 33(96), pages 531-586.

Sovereign Holdings by banks

12


• Developments in main bank credit components in the euro area

• (12-month flows in EUR bn, nsa)

• Source: ECB.

• Notes: Loans to private sector exclude interbank and CCP loans. Latest observation: April 2019.

•Composition of euro area credit institutions’ sovereign bond portfolios

•(share of each group of issuer, percentage points)

Source: ECB.

Notes: Holdings of bonds issued by general governments resident in the euro area. Latest observation: 2018Q4

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

14Q1 15Q1 16Q1 17Q1 18Q1

IT, ES, PT, GR, IE, SI, CY

Non EA Other EA (IT, ES, PT, GR, IE, SI, CY)

Other EA (other countries) Domestic

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

14Q1 15Q1 16Q1 17Q1 18Q1

Other countries

-400

-300

-200

-100

0

100

200

300

400

2010 2012 2014 2016 2018

Loans - private sector Securities - government

APPCE APPCE

Evidence from the Bank Lending Survey

13


• Impact of the APP on euro area banks’ assets and market financing conditions

• (net percentages of banks)

• Source: ECB. Bank lending survey (BLS)

• Notes: The net percentages are defined as the difference between the sum of the percentages for “increased/improved considerably” and “increased/improved somewhat” and the sum of the percentages for “decreased/deteriorated somewhat” and “decreased/deteriorated considerably”. The periods in the legend refer to the respective BLS survey rounds. “Expected” denotes expectations indicated by banks in the current round.

•Impact of the APP on

•bank lending volumes •(net percentages of banks)

Source: ECB. Bank lending survey (BLS).

Notes: The net percentages are defined as the difference between the sum of the percentages for “increased considerably” and “increased somewhat” and the sum of the percentages for “decreased somewhat” and “decreased considerably”. The periods in the legend refer to the respective BLS survey rounds. “Expected” denotes expectations indicated by banks in the current round.

0

2

4

6

8

enterprises households for housepurchase

consumer credit andother lending

Oct-18 Apr-19 expected

-20

-10

0

10

20

30

40

Oct-18 Apr-19 expected Oct-18 Apr-19 expected

total assets market financing conditions

equity issuedunsecured bank bondscovered bondsfinancing via ABSseuro area sovereign bond holdings

Outline

14





Conclusions

15

Eonia forward curve (percentages per annum)

Transmission channels of NIRP

Source: Thomson Reuters, Bloomberg and ECB calculations. Note: x-axis reports months.

Transmission Channels

1. Removal of non-negativity restriction NIRP not only shifts down short rates to negative territory, but also keeps open expectations of possible further rate cuts. As a result, the forward curve becomes flatter and monetary accommodation propagates over the entire term structure.

2. Demand of long-term assets

The incentive for investors to move to longer dated assets increases the demand for these securities relative to their supply. This ultimately exerts an extra downward pressure on the term premium, which compensates investors for the risk of holding bonds with longer duration.

3. Portfolio rebalancing channel

The attempt by individual banks to escape the charge results in balance sheet adjustments, whereby banks react to the mechanical absorption of their excess liquidity by creating new (riskier) loans or by purchasing securities.


-0.5

0

0.5

1

1.5

2

2.5

3

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

t t+12 t+24 t+36 t+48 t+60 t+72 t+84 t+96

02/05/2014 15/04/2019

An identification strategy

16


Sources: Rostagno, Altavilla, Carboni, Lemke, Motto, Saint-Guilhem, Yiangou (2019). Notes: Evolution of the OIS forward curve from pre-policy package (black-dotted line) to post-policy package (red line), together with risk neutral option-implied distributions (Euribor 3m – spread adjusted), as well as a shifted counterfactual forward curve (blue-dotted line) and its risk-neutral option-implied distribution. The counterfactual distribution and forward curve is constructed by anchoring the current distribution at zero and subsequently assuming that w/o FG and w/o NIRP, all probability mass that is observed below zero after shifting would proportionally re-distribute to and above zero.

-0.75

-0.50

-0.25

0.00

0.25

0.50

2014 2015 2016 2017 2018 2019 2020 2021

g20th-80th percentile

gRealised EONIAHistorical EONIA forward curve (31 Jan 2014)Latest EONIA forward curve (24 June 2019)Counterfactual EONIA forward curve w/o NIRP and w/o FG

TLTRO (Targeted longer-term refinancing operations): to influence banks’ lending rates by compressing the cost components of loan creation

Negative rate policy: to pin down the level of the term structure of interest rates

Purchases of securities issued by public and private institutions: to control the slope of the term structure of interest rates

Forward guidance: to orient expectations of the purchase and rate policies

Four instruments

Expectations of future short-term rates observed and counterfactual

(percentages per annum)

Large impact of combined rate policies (NIRP and forward guidance)

17


Source: Rostagno, Altavilla, Carboni, Lemke, Motto, Saint-Guilhem, Yiangou (2019). Notes: The counterfactual path for lending rates to NFCs under no-NIRP is given by the forecast of a BVAR model conditional on the no-NIRP path for forward rates depicted on the LHS chart. Latest observation: April 2019.

0

1

2

3

4

5

2009 2011 2013 2015 2017 2019

Actual Counterfactual no NIRP

Sources: Rostagno, Altavilla, Carboni, Lemke, Motto, Saint-Guilhem, Yiangou (2019). Notes: Evolution of the OIS forward curve from pre-policy package (black-dotted line) to post-policy package (red line), together with risk neutral option-implied distributions (Euribor 3m – spread adjusted), as well as a shifted counterfactual forward curve (blue-dotted line) and its risk-neutral option-implied distribution. The counterfactual distribution and forward curve is constructed by anchoring the current distribution at zero and subsequently assuming that w/o FG and w/o NIRP, all probability mass that is observed below zero after shifting would proportionally re-distribute to and above zero.

-0.75

-0.50

-0.25

0.00

0.25

0.50

2014 2015 2016 2017 2018 2019 2020 2021

g20th-80th percentile

gRealised EONIAHistorical EONIA forward curve (31 Jan 2014)Latest EONIA forward curve (24 June 2019)Counterfactual EONIA forward curve w/o NIRP and w/o FG

Expectations of future short-term rates observed and counterfactual


Lending rates to NFCs, actual and counterfactual under no NIRP


Stock of Deposits

(percentage points)

The lending channel

18


0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35

2014 2015 2016 2017 2018 2019

NFC depositsNFC and Household depositsHousehold deposits

Share of outstanding deposits with negative interest rates in non-vulnerable countries

(6-month averages; percent)

Sources: Altavilla, Burlon, Giannetti, Holton, 2019. "Is there a zero lower bound? The effects of negative policy rates on banks and firms," Working Paper Series 2289, European Central Bank.

Notes: Deposit rates on outstanding amounts are reported by individual banks for each of the available product categories, weighted by outstanding amounts in March 2019. Household deposits include deposits from private households (S.14 ESA 2010) and deposits from non-profit institutions serving households (S.15 ). Non-vulnerable countries exclude IT, ES, PT, GR, IE, SI, CY. Latest observation: March 2019.

Jan12 Jan13 Jan14 Jan15 Jan16 Jan17 Jan18

-0.5

0

0.5

1

1.5DFR

Mean up to 1th percentile

Mean between 2nd and 5th percentile

Mean

Lending volumes (level; 1=May 2014)

Source: Altavilla, Burlon, Giannetti, Holton, 2019. "Is there a zero lower bound? The effects of negative policy rates on banks and firms," Working Paper Series 2289, European Central Bank Notes: Total lending (left) and total deposits (right) of banks that never charge negative deposit rates as opposed to banks that do offer negative deposit rates. Total volumes for the two categories are normalized to the level in May 2014. The blue vertical lines indicate the four episodes of DFR cuts below zero.

Deposit volumes (level; 100=May 2014)

The lending channel

Jan13 Jan14 Jan15 Jan16 Jan17 Jan18

0.9

0.95

1

1.05

1.1

1.15

1.2

Never negative

Sometimes negative

Jan13 Jan14 Jan15 Jan16 Jan17 Jan18

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

Never negative

Sometimes negative

19


The corporate channel of monetary policy

20

NIRP and the corporate channel (percentages; percentage points)

NIRP and the credit channel (annual percentage changes; percentage points)

Source: Altavilla, Burlon, Giannetti, Holton, 2019. "Is there a zero lower bound? The effects of negative policy rates on banks and firms," ECB WP 2289.

Notes: LHS:Bank health is proxied by the level of NPL. Healthy banks belong to the percentiles between the 20th and the 50th of the NPL ratio distribution (average NPL ratio: 4%). Unhealthy banks belong to the percentiles between the 50th and the 80th of the NPL ratio distribution (average NPL ratio: 9%). The counterfactual is computed assuming that both groups of banks do not have any outstanding NPL. RHS: Exposure to NIRP is measured by the ratio of current assets to total assets (a proxy for bank deposits) of firms that are connected to banks charging negative rates.

0

5

10

15

20

25

30

0

5

10

15

20

25

30

0 10 20 30 40 50 60 70 80 90 100Exposure (ratio of current to total assets)

Distribution of exposure (%)Effect on investment (pp)

-20

-10

0

10

20

30

-20

-10

0

10

20

30

Healthy banks Unhealthy banks

Counterfactual with full pass-through of NIRPActual average loan growth since May 2014


Outline

21





Conclusions

22

Bank bond yields around past TLTROs announcement

(percentage points)

Transmission channels of TLTRO

Notes: The chart shows the reaction of bank bond yields to the announcements of the TLTROs made in 5th June 2014 and 10th March 2016.

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

EA DE FR IT ES

2-day event study TLTRO I and II5-day event study TLTRO I and II

Transmission Channels

1. Direct pass-through channel (for bidders) The substitution of more expensive financing with TLTROs will decrease the average funding costs of banks borrowing from the TLTROs.

2. Portfolio rebalancing channel

Banks taking part in TLTRO would likely cancel or postpone plans to issue bonds into the market, bank bond scarcity would bring a funding cost relief even to the benefit of those banks that were to shun the operations.

3. Signalling channel

Large liquidity injection determined a shift of investor expectations concerning the future policy path


23

Source: ECB iBSI and ECB calculations. Notes: The chart shows the notional stock of loans to NFCs across bidders and non bidders relative to September 2014. Vulnerable countries are Ireland, Greece, Spain, Italy, Cyprus, Portugal and Slovenia. Other countries are all the remaining euro area countries.

Lending volumes to NFCs of bidders and non bidders

(notional stock; September 2014=1)

Past operations stimulated lending

Source: ECB calculations. Notes: Estimates without TLTRO are based on a range of models including Albertazzi, Altavilla, Boucinha, Di Maggio (mimeo 2019), Holton, Rodriguez D´Acri (2018) Journal of Banking and Finance, Altavilla, Canova, Ciccarelli (2019) Journal of Monetary Economics.

Counterfactual estimation for euro area banks

(percent)

0.8

0.9

1.0

1.1

1.2

0.8

0.9

1.0

1.1

1.2

2013 2015 2017

Non bidders Bidders

0.8

0.9

1.0

1.1

1.2

0.8

0.9

1.0

1.1

1.2

2013 2015 2017

Other countries

Vulnerable countries


Source: ECB iMIR and ECB calculations. Notes: NFC lending rates are on outstanding loans to non-financial corporations weighted by volume. Chart shows average rates across bidders and non bidders in deviation from rates in September 2014. Vulnerable countries are Ireland, Greece, Spain, Italy, Cyprus, Portugal and Slovenia. Other countries are all the remaining euro area countries.

24

Lending rates to NFCs of bidders and non bidders

(percentage points; deviations from September 2014)

...and reduced lending rate level and dispersions

-1.5

-1.0

-0.5

0.0

0.5

-1.5

-1.0

-0.5

0.0

0.5

2013 2015 2017

Non bidders Bidders

-1.5

-1.0

-0.5

0.0

0.5

-1.5

-1.0

-0.5

0.0

0.5

2013 2015 2017

Other countries

Vulnerable countries

Source: ECB iMIR and ECB calculations. Notes: The figure reports the distribution density approximation of individual banks’ new business lending rates in three different periods (September 2011, June 2014 and November 2018) for banks operating in two set of countries.

Changes in lending rates to NFCs across individual banks in the euro area (percentages per annum)

0 2 4 6

DE, AT, FR, BE, NL IT, ES, PT, IE

Nov-18

Sep-11

Jun-14


25

...especially for banks that most needed

Decline in bank lending rates due to the ECB’s non-standard monetary policy measures by bank characteristics (percentages points)


Source: Altavilla, Canova, Ciccarelli (2019) Journal of Monetary Economics.

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

Jan.14 Jan.15 Jan.16 Jan.17 Jan.18

Non-performing loansHigh Low

-0.8

-0.6

-0.4

-0.2

0.0

0.2

Jan.14 Jan.15 Jan.16 Jan.17

Difference: non-performing loans

0.0

0.1

0.2

0.3

0.4

Jan.14 Jan.15 Jan.16 Jan.17

Difference: capital ratio

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

Jan.14 Jan.15 Jan.16 Jan.17 Jan.18

Capital ratioHigh Low

26

Effect on lending to low-quality borrowers of monetary easing and centralized supervision

Interaction with (micro- and macro-) prudential policies

Open questions

Do banks with ex-ante higher NPL supply more credit to riskier borrowers?

Does centralised (ECB) vs. local banking supervision affect bank risk-taking?

Does the interaction between bank supervision & MP affect risk-taking?

We address both issues by using multiple credit registers (our Big Data) about 300mln observations

Source: Altavilla Carlo & Miguel Boucinha & José-Luis Peydró & Frank Smets, 2019. Banking Supervision, Monetary Policy and Risk-Taking: Big Data Evidence from 15 Credit Registers

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

25th 50th 75th

Local Supervision - Neutral MPLocal Supervision - MP EasingCentralised Supervision - MP Easing

MP

Sup

Percentiles of NPL distribution

MP easing leads to increase lending towards riskier firms But risk-taking tend to be canceled by centralized supervision


Outline

27





Conclusions

Propagation to yields

28


Sources: Rostagno, Altavilla, Carboni, Lemke, Motto, Saint-Guilhem, Yiangou (2019): A Tale of two Decades: The ECB’s Monetary Policy at 20.

Impact of ECB non-standard measures on the term structure of interest rates 2014-18 (percentage points per annum)

Propagation to inflation and the economy

29


Sources: Rostagno, Altavilla, Carboni, Lemke, Motto, Saint-Guilhem, Yiangou (2019): A Tale of two Decades: The ECB’s Monetary Policy at 20. Notes: Shown is the impact of ECB non-standard measures on macro variables based on a macroeconomic model with financial variables conditioning on the yield curve impact shown on the previous slide.

Contribution of ECB non-standard measures to HICP inflation 2014-2018

(year-on-year percentage changes)

Contribution of ECB non-standard measures to real GDP growth 2014-2018

(year-on-year percentage changes)

1.0

1.5

2.0

2.5

3.0

1.0

1.5

2.0

2.5

3.0

2014 2015 2016 2017 2018

TLTRO NIRPFG APPReal GDP growth Counterfactual

-0.5

0.0

0.5

1.0

1.5

2.0

-0.5

0.0

0.5

1.0

1.5

2.0

2014 2015 2016 2017 2018

TLTRO NIRPFG APPHICP inflation Counterfactual

Outline

30





Conclusions

Conclusions

31


The results presented suggest that the NSMs have significantly lowered yields in a broad set of financial market segments, with the effects generally increasing with maturity and riskiness.

The various programmes have contributed to a reduction in banks’ funding costs, which has incentivised them to pass on the cost relief to final borrowers by granting more credit at better conditions.

Overall, the improved credit conditions in the euro area have helped push the monetary policy accommodation through the intermediation chain to reach households and firms.

The effects on real economic activity have been sizeable.

References

32


Altavilla, Carlo & Canova, Fabio & Ciccarelli, Matteo, 2019. "Mending the broken link: heterogeneous bank lending and monetary policy pass-through”, forthcoming in Journal of Monetary Economics.

Altavilla Carlo & Marco Pagano & Saverio Simonelli, 2017. "Bank Exposures and Sovereign Stress Transmission," Review of Finance, vol. 21(6), pages 2103-2139.

Altavilla Carlo & Miguel Boucinha & José-Luis Peydró, 2018. "Monetary policy and bank profitability in a low interest rate environment," Economic Policy, vol. 33(96), pages 531-586.

Altavilla, Carlo & Brugnolini, Luca & Gürkaynak, Refet S. & Motto, Roberto & Ragusa, Giuseppe, 2019. "Measuring euro area monetary policy," Working Paper Series 2281, European Central Bank (under revision for Journal of Monetary Economics)

Altavilla, Carlo & Carboni, Giacomo & Motto, Roberto, 2015. "Asset purchase programmes and financial markets: lessons from the euro area," European Central Bank Working Paper Series 1864.

Altavilla, Carlo & Boucinha, Miguel & Holton, Sarah & Ongena, Steven, 2018. "Credit supply and demand in unconventional times," European Central Bank Working Paper Series No.2202.

Altavilla, Carlo & Burlon, Lorenzo & Giannetti, Mariassunta & Holton, Sarah, 2019. "Is there a zero lower bound? The effects of negative policy rates on banks and firms” European Central Bank Working Paper Series No.2289,

Albertazzi, U., C. Altavilla, M. Boucinha, and M. Di Maggio, 2019. “The Incentive Channel of Monetary Policy: Quasi-Experimental Evidence from Liquidity Operations”, mimeo

Altavilla Carlo & Miguel Boucinha & José-Luis Peydró & Frank Smets, 2019. Banking Supervision, Monetary Policy and Risk-Taking: Big Data Evidence from 15 Credit Registers, ECB WP forthcoming.

Altavilla, Carlo & C. Andreeva, Desislava & Boucinha, Miguel & Holton, Sarah, 2019. "Monetary policy, credit institutions and the bank lending channel in the euro area," European Central Bank Occasional Paper Series 222,.

Rostagno, Massimo; Altavilla, Carlo; Carboni, Giacomo; Lemke, Wolfgang; Motto, Roberto; Saint-Guilhem, Arthur and Yiangou, Jonathan, 2019, “A Tale of two Decades: The ECB’s Monetary Policy at 20”, ECB WP forthcoming.

Documents

Monetary policy transmission mechanisms › pub › conferences › shared › pdf › ...2019/07/01 · Monetary policy transmission mechanisms The opinions in this presentation