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The Impact Of Quantitative Easing On Liquidity Creation, Supriya Kapoor, Supriya Kapoor, Oana Peia
The Impact Of Quantitative Easing On Liquidity Creation, Supriya Kapoor, Supriya Kapoor, Oana Peia
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We study the effects of the US Federal Reserve’s large-scale asset purchase programs during 2008–2014 on bank liquidity creation. Banks create liquidity when they transform the liquid reserves resulted from quantitative easing (QE) into illiquid assets. As the composition of banks’ loan portfolio affects the amount of liquidity it creates, the impact of quantitative easing on liquidity creation is not a priori clear. Using a difference-in-difference identification strategy, we find that banks more affected by the policy increased lending relative to those less affected, mainly during the first and third round of QE. However, we only find a strong effect …