Unconventional Monetary Policy and bank supervision

This paper studies the impact of unconventional monetary policy on the economy and its interactions with bank supervisory rules. In particular, we look at the impact of liquidity injections (quantitative easing) and repurchases of impaired loans (qualitative easing) under increased capital requirements for banks. We show that quantitative easing is most effective in terms of reducing losses in GDP and consumption which occur after a financial shock but leads to high fluctuations in inflation and GDP. Qualitative easing, on the contrary, has only a small impact on GDP and consumption but does not increase the volatility of inflation and GDP as much as quantitative easing. When unconventional monetary policy is combined with stricter bank regulation, we find that qualitative easing becomes more effective in terms of reducing losses in GDP and consumption, whereas quantitative easing becomes less effective. Moreover, we show that stricter bank regulation helps to decrease the volatility of inflation and GDP caused by quantitative measures.