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The Impact of Unconventional Monetary Policies on Lending Rates: An Evidence of the European Central Bank’s Large Scale Asset Purchases

Abstract: Over the last few years, the largest central banks used different approaches due to financial and debt sovereign crises. The present dissertation introduces a review of unconventional monetary policies (Quantitative Easing and Credit Easing) and assesses the main transmission mechanisms of unconventional monetary policies and the conditions under which they may, or may not, impact the economic agents through the bank funding channel. Furthermore, this dissertation evaluates the impact of the European Central Bank’s (ECB) unconventional monetary policies on the lending rates. The statistical distribution analysis is based on the credit to non-financial corporations and for house purchases. The analysis is subsequently extended to a Vector Auto-Regressive (VAR) model, where the main goals are to analyse the Impulse Response Functions (IRF) of the Large Scale Asset Purchases (LSAP) and the fixed interest rate for the Main Refinancing Operations (MRO) on the lending rates for non-financial corporations and house purchases and study the causality between these variables and the decrease on the lending rates. The results show that (i) changes on the ECB’s LSAP Granger causes changes on both lending rates as well as the changes on the policy rate, (ii) these variables have significant effects from the IRF and (iii) the Bayesian Vector AutoRegression (BVAR) approach confirm the standard models.
KEYWORDS: Large Scale Asset Purchases, Monetary Policy, Quantitative Easing, Unconventional Monetary Policy, Vector Auto-Regressive Models.
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