Unconventional monetary policy stabilizes loan market during financial crises.
Central banks had to use unconventional monetary policies during the financial crisis when traditional tools were not enough. The paper presents a simple model to understand how these policies affect the money supply and banking system. When the crisis hit, central banks had to provide direct loans to non-bank sectors to stabilize the loan market. This led to banks having more reserves than needed, causing a disconnect between policy rates and reserves. The paper also discusses how bank losses and maturity transformation impact loan supply.