Tim Eisert (Erasmus University) – Whatever it takes: The Real Effects of Unconventional Monetary Policy
On July 26, 2012 Mario Draghi announced to do “whatever it takes” to preserve the Euro. The resulting Outright Monetary Transactions (OMT) Program led to a significant reduction in the sovereign yields of periphery countries. Due to their significant holdings of GIIPS sovereign debt, the OMT announcement indirectly recapitalized periphery country banks by increasing the value of their sovereign bonds. This led to an increased supply of loans to private borrowers in Europe. We show that firms that receive new loans from periphery banks use the newly available funding to build up cash reserves, but there is no impact on real economic activity like employment or investment.