'Whatever it takes: The Real Effects of Unconventional Monetary Policy'
On July 26, 2012 Mario Draghi announced to do ``whatever it takes'' to preserve the Euro and shortly after launched the Outright Monetary Transactions (OMT) Program, which led to a significant reduction in the sovereign yields of periphery countries. Due to their significant holdings of GIIPS sovereign debt, the OMT announcement indirectly recapitalized periphery country banks by increasing the value of their sovereign bond holdings. This paper shows that this backdoor recapitalization of European banks led to an increased supply of loans to private borrowers in Europe. This loan increase is mostly targeted towards low-quality firms and can at least partly be explained by evergreening of banks that benefited from the OMT announcement, but remained weakly capitalized even after the OMT announcement. We show that firms that receive new loans from these banks use the newly available funding to build up cash reserves, but there is no impact on real economic activity like employment or investment. Moreover, the presence of zombie firms even depresses employment growth and investment of high quality firms that operate in the same industry (joint with Viral V. Acharya, Christian Eufinger and Christian Hirsch).