Journal of Mathematical Finance
Volume 6, Issue 1 (February 2016)
ISSN Print: 2162-2434 ISSN Online: 2162-2442
Google-based Impact Factor: 0.87 Citations h5-index & Ranking
Liquidity Management at the Zero Lower Bound and an Era of Activism in Central Banking ()
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ABSTRACT
The paper studies liquidity management in the banking sector at the zero lower bound implemented by central banks. The new era of monetary policy with interest rates at zero and quantitative easing programs raise questions about the effectiveness of central banking policy and their impact on the banking sector. I find that the zero lower bound reduces liquidity reserves of banks and thus creates less credit supply. The T-LTRO program, developed by the European Central Bank, has helped to tackle this problem. However, the recently expanded asset purchase program reveals the opposite effect. Hence, the recent liquidity provisions by central banks have put incentives rather on de-leveraging than bank lending.
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