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ON THE EFFECTS OF THE ECB’S FUNDING POLICIES ON BANK LENDING AND THE DEMAND FOR THE EURO AS AN INTERNATIONAL RESERVE

Heather D. Gibson
Bank of Greece

Stephen G. Hall
University of Leicester, Bank of Greece and University of Pretoria 

Pavlos Petroulas
Bank of Greece

 George S. Tavlas
Bank of Greece and University of Leicester


ABSTRACT

The euro-area financial crisis that erupted in 2009 was marked by negative confidence effects that had both domestic and international ramifications. Domestically, bank lending declined sharply. Internationally, the demand for the euro as a reserve currency fell precipitously. We investigate the effects of ECB policies on banks’ lending, taking account of national and regional spillovers. We also assess the effects of ECB policies on euro reserve holdings. The results suggest that those policies were important for rebuilding confidence, thus supporting both bank lending and the use of the euro as a reserve asset. 

Keywords: euro area financial crisis, monetary policy operations, European banks, spatial panel model

JEL Classification
: E3, G01, G14, G21

Acknowledgements: We have benefitted from comments by Joshua Aizenman, Yin-Wong Cheung, and participants at the CityU-JIMF Conference “Global Safe Assets, International Reserves, and Capital Flow.” 



Correspondence:
George S. Tavlas
Bank of Greece
21 E Venizelos Ave,
Athens, 10250, Greece
Tel. no. +30 210 320 2370
Fax. no. +30 210 320 2432
Email address: gtavlas@bankofgreece.gr 

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