Publication detail

Policy uncertainty, lender of last resort and the real economy

Author(s): Martina Jašová , Caterina Mendicino, Dominik Supera
Type: Articles in journals with impact factor
Year: 2021
Number: 118
ISSN / ISBN:
Published in: Journal of Monetary Economics
Publishing place:
Keywords: Bank credit, Central bank commitment, Real effects
JEL codes: E44, E52, E58, G21, G32
Suggested Citation: Jasova M., Mendicino C., Supera D. (2021) Policy uncertainty, lender of last resort and the real economy, Journal of Monetary Economics 118: 381-398
Abstract: A reduction in lender of last resort (LOLR) policy uncertainty positively affects bank lending and propagates to investment and employment. We exploit a unique policy that reduced uncertainty regarding the availability of future LOLR funding for banks as a quasi-natural experiment. Using micro-level data on banks, firms and loans in Portugal, we generate cross-sectional variation in banks’ exposure to uncertainty and find that the size of the haircut subsidy - the gap between private market and central bank security valuations - plays a key role in the propagation of the shock to lending and the real economy.

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