Volume 9, Number 1 March 2013 oue9 ubr1March 2013 Volume 9, Number 1 BANKING OF CENTRAL JOURNAL INTERNATIONAL

INTERNATIONAL JOURNAL OF CENTRAL BANKING

Special Issue: Consequ uses, ences : Ca an es d P ris ol l C icy ia O nc p a tio in Introduction n F s Term Structure Modeling with Supply Factors and the Federal Reserve’s Large-Scale Asset Purchase Programs Canlin Li and Min Wei Discussant: Mark Loewenstein The Impact of Policy Initiatives on Credit Spreads during the 2007–09 Financial Crisis Alan M. Rai Discussant: Jialin Yu Commentary: A European History Lesson for Today’s Central Bankers Hanno Lustig Monetary Policy, Macroprudential Policy, and Banking Stability: Evidence from the Euro Area Angela Maddaloni and José-Luis Peydró Discussant: Egon Zakrajsˇek Banks’ Equity Capital Frictions, Capital Ratios, and Interest Rates: Evidence from Spanish Banks Alfredo Martín-Oliver, Sonia Ruano, and Vicente Salas-Fumás Discussant: Gianni De Nicolò Capital Flows and Financial Stability: Monetary Policy and Macroprudential Responses D. Filiz Unsal Commentary: Commentary on Macroprudential Policies Gianluca Benigno Closing Comments: Hong Kong’s Approach to Financial Stability Dong He International Journal of Central Banking

Volume 9, Number 1 March 2013

Special Issue: Financial Crises: Causes, Consequences and Policy Options Introduction 1 Term Structure Modeling with Supply Factors and the 3 Federal Reserve’s Large-Scale Asset Purchase Programs Canlin Li and Min Wei Discussion: Mark Loewenstein 41 The Impact of Policy Initiatives on Credit Spreads during 45 the 2007–09 Financial Crisis Alan M. Rai Discussion: Jialin Yu 105 A European History Lesson for Today’s Central Bankers 109 Hanno Lustig

Monetary Policy, Macroprudential Policy, and Banking 121 Stability: Evidence from the Euro Area Angela Maddaloni and Jos´e-Luis Peydr´o Discussion: Egon Zakrajˇsek 171 Banks’ Equity Capital Frictions, Capital Ratios, and 183 Interest Rates: Evidence from Spanish Banks Alfredo Mart´ın-Oliver, Sonia Ruano, and Vicente Salas-Fum´as Discussion: Gianni De Nicol`o 227 Capital Flows and Financial Stability: Monetary Policy and 233 Macroprudential Responses D. Filiz Unsal

Commentary on Macroprudential Policies 287 Gianluca Benigno

Closing Comments

Hong Kong’s Approach to Financial Stability 299 Dong He

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ISSN: 1815-4654 International Journal of Central Banking

Board of Directors Chairman John Murray, Bank of Canada

Board Members Q. Farooq Akram, Norges Bank Philip Lowe, Reserve Bank of Australia Abdulrahman Al-Hamidy, Saudi Arabian Choy Keen Meng, Monetary Authority of Singapore Monetary Agency Loretta J. Mester, Federal Reserve Bank David E. Altig, Federal Reserve Bank of Atlanta of Philadelphia Carlos Hamilton Vasconcelos Araujo, Central Bank John McDermott, Reserve Bank of New Zealand of Brazil Maurice McGuire, Central Bank of Ireland Jan Marc Berk, The Nederlandsche Bank Deepak Mohanty, Reserve Bank of India Claudio Borio, Bank for International Settlements Vyacheslav Morgunov, Central Bank of Mohamed Tahar Bouhouche, Bank of Algeria Russian Federation Laurent Clerc, Bank of France Edward Offenbacher, Bank of Israel Francisco G. Dakila Jr., Central Bank of Fabio Panetta, Bank of Italy the Philippines Th´orarinn G. P´etursson, Central Bank of Iceland Spencer Dale, Bank of England Cristian Popa, National Bank of Romania Jean-Pierre Danthine, Swiss National Bank Ivan Ribnikar, Bank of Slovenia William English, Federal Reserve Board Harvey Rosenblum, Federal Reserve Bank of Dallas Jiang Feng, People’s Bank of China Mark Schweitzer, Federal Reserve Bank Manuel Ramos Francia, Bank of Mexico of Cleveland Jeffrey C. Fuhrer, Federal Reserve Bank of Boston Frank Smets, European Central Bank Hiroshi Fujiki, Bank of Japan Jan Smets, National Bank of Belgium Andr´es Gonz´alez G´omez, Banco de la Rep´ublica Kateˇrina Sm´ˇ ıdkov´a, Czech National Bank Niels Lyngg˚ard Hansen, Danmarks Nationalbank Daniel Sullivan, Federal Reserve Bank of Chicago Dong He, Hong Kong Monetary Authority Altin Tanku, Bank of Albania Luis Oscar´ Herrera, Central Bank of Chile Juha Tarkka, Bank of Finland Heinz Herrmann, Deutsche Bundesbank George Tavlas, Bank of Greece Tor Jacobson, Sveriges Riksbank Joseph Tracy, Federal Reserve Bank of New York Juan F. Jimeno, Bank of Spain Dobieslaw Tymoczko, National Bank of Poland George A. Kahn, Federal Reserve Bank of Kansas City Christopher Waller, Federal Reserve Bank Ali Hakan Kara, Central Bank of Turkey of St. Louis Jun Il Kim, Bank of Korea John Weinberg, Federal Reserve Bank of Richmond Ana Christina Leal, Bank of Portugal Kei-Mu Yi, Federal Reserve Bank of Minneapolis

Editorial Board Managing Editor John C. Williams Federal Reserve Bank of San Francisco

Co-editors Pierpaolo Benigno Harrison Hong Rafael Repullo LUISS Guido Carli Princeton University CEMFI Michael B. Devereux Loretta Mester University of British Columbia Federal Reserve Bank of Philadelphia

Associate Editors Patrick Bolton Jordi Gal´ı Eli M. Remolona University of Columbia Centre de Recerca en Economia Bank for International Michael D. Bordo Internacional (CREI) Settlements Rutgers University Marvin Goodfriend H´el`ene Rey Mark Carey Carnegie Mellon University London Business School Federal Reserve Board Michael B. Gordy Jean-Charles Rochet Pierre Collin-Dufresne Federal Reserve Board University of Toulouse University of Columbia Luigi Guiso Andrew K. Rose Guy Debelle European University Institute University of California, Reserve Bank of Australia Andrew G. Haldane Berkeley Michael B. Devereux Bank of England Klaus Schmidt-Hebbel University of British Columbia Takatoshi Ito Organisation for Economic University of Tokyo Co-operation and Development Douglas W. Diamond (OECD) University of Chicago Graduate David Lando School of Business Copenhagen Business School Lars E.O. Svensson Sveriges Riksbank Francis Diebold Philip Lane University of Pennsylvania Trinity College Dublin J¨urgen von Hagen University of Bonn Michael Dotsey Francesco Lippi Federal Reserve Bank of University of Sassari Ernst-Ludwig von Thadden University of Mannheim Philadelphia Carmen M. Reinhart Darrell Duffie University of Maryland Tsutomu Watanabe Stanford University University of Tokyo

Advisory Board Franklin Allen Hyun Shin Michael Woodford The Wharton School of the Princeton University Columbia University University of Pennsylvania Kazuo Ueda John Taylor Charles Goodhart University of Tokyo Stanford University London School of Economics