The impact of unconventional monetary policy tools on the profitability index of the banking sector in the United States of America: a case study for the period (2004-2023)

Abstract

Recent years have witnessed a significant expansion in the use of unconventional monetary policy tools by many economies, particularly after the 2008 global financial crisis. This shift stemmed from the limited effectiveness of traditional tools in an environment characterized by near-zero interest rates and weak transmission channels of monetary policy. This necessitated the development of alternative policies to enhance the stability of the banking sector and support economic activity. In this context, this research aims to analyze the impact of unconventional monetary policy tools in the United States on the profitability index of the banking sector during the period 2004–2023. This is due to the pivotal role banks play in transmitting the impact of monetary policies to the real economy. To achieve this objective, the ARDL model was adopted to measure the long-term and short-term relationship between unconventional monetary policy tools and certain monetary variables related to banking sector profitability. This model is highly capable of handling time series with varying degrees of integration and interpreting dynamic effects across time gaps.