The Impact of Unconventional Monetary Policies on the Stocks of Bank Deposits: Evidence at an Aggregate Level in the Euro Area

Paolo Agnese,Paolo Capuano,Luca Secondi

doi:10.5430/ijfr.v11n6p270

Abstract

Due to the severity and persistence of the global financial crisis started in 2007, central banks all over the world have adopted Unconventional Monetary Policies (UMPs), including negative policy rates, longer-term refinancing operations and large-scale purchases of financial assets. In this study, by referring to a time-series regression analysis with Newey-West correction, we evaluate the impact of UMPs implemented by the Eurosystem over the period 2008-2019 on the stocks of euro area banks’ deposit from households and non-financial corporations. The analysis of the effects of UMPs on the stocks of banks’ deposit represents a particularly innovative aspect of this research, where most of the scientific literature focuses on deposit interest rates. Our results suggest that the UMPs conducted by the Eurosystem have had a significant positive impact on euro area bank deposits, with particular reference to the relationship between Longer-term refinancing operations and Household overnight deposits, as well as between Securities held for monetary policy purposes and deposits from Households (total deposits) and from Corporates (overnight deposits).

Highlights

The seriousness and persistence of the global financial crisis started in 2007 have required Unconventional Monetary Policies (UMPs) taken by central banks around the world, in order to contain risks of low inflation or deflation and to counteract the slowdown in economic activity
Focusing on coefficient of variation (CV) – as relative measure of variability – we observed high levels of variability, throughout the entire period of observation, for the variables related to the consolidated financial statement of the Eurosystem (i.e. Securities held for monetary policy purposes) and the Key ECB interest rates, with the ECB Deposit facility rate showing the highest CV value
Recent research on the measures adopted by monetary authorities following the global financial crisis focuses on the relationship between UMPs and bank deposit rates

Summary

Introduction

The seriousness and persistence of the global financial crisis started in 2007 have required Unconventional Monetary Policies (UMPs) taken by central banks around the world, in order to contain risks of low inflation or deflation and to counteract the slowdown in economic activity. The UMPs refer, in general terms, to all the new or innovative instruments of monetary policy, such as negative interest rates, longer-term refinancing operations, large-scale purchases of financial assets and forward guidance (for a taxonomy see, for instance: BIS, 2019; Borio and Zabai, 2016; Stone et al, 2011). Several authors studied the impact of UMPs on the pass-through of negative interest rate policy (NIRP) to deposit rates (Altavilla et al, 2019; Bech and Malkhozov, 2016; Brei et al, 2019; Claessens et al, 2017; Demiralp et al, 2019; ECB, 2016; Eisenschmidt and Smets, 2018; Heider et al, 2018). By means of time-series regression analysis accounting for the existence of autocorrelation and heteroskedasticity through the Newey-West estimator, we analyze the impact of UMPs implemented by the Eurosystem over the period 2008-2019 on the stocks of bank deposits (from households and from non-financial corporations) within the euro area (Note 1)

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