Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area

Christian Bittner; Alexander Rodnyansky; Farzad Saidi; Yannick Timmer

doi:10.1093/rof/rfag038

Review of Finance 2026

Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area

Christian Bittner¹; Alexander Rodnyansky²; Farzad Saidi³; Yannick Timmer⁴

¹ Deutsche Bundesbank and Goethe University Frankfurt · ² Presidential O_ce of Ukraine, University of Cambridge , and CEPR · ³ University of Bonn and CEPR · ⁴ Federal Reserve Board

Abstract

We study the interaction of expansionary rate-based monetary policy and quantitative easing, despite their concurrent implementation, by exploiting heterogeneous banks and the introduction of negative monetary-policy rates in a fragmented euro area. Quantitative easing increases credit supply less when banks’ funding costs do not decrease simultaneously. Using administrative data from Germany, we uncover that among banks selling their securities, central-bank reserves remain disproportionately with high-deposit banks that are constrained due to sticky customer deposits at the zero lower bound. Affected German banks lend relatively less to firms while increasing their interbank exposure in the euro area.

DOI: 10.1093/rof/rfag038
Language: en
Sources: openalex crossref

Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area

Abstract

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