Paper #1649

Title:

Expansionary yet different: credit supply and real effects of negative interest rate policy

Authors:

Margherita Bottero, Camelia Minoiu, José-Luis Peydró, Andrea Polo, Andrea F. Presbitero and Enrico Sette

Date:

February 2019 (Revised: September 2020)

Abstract:

We show that negative interest rate policy (NIRP) has expansionary effects on bank credit supply and firm outcomes through a portfolio rebalancing channel. For identification, we exploit ECB's NIRP and credit register, firm- and bank-level datasets. NIRP affects relatively more banks with higher ex-ante net interbank positions or more liquid balance sheets. More exposed banks reduce liquid assets, expand credit supply to ex-ante riskier firms, and cut rates, inducing sizable firm-level real effects. By shifting down and flattening the yield curve, NIRP differs from rate cuts just above the zero-lower-bound. We find no evidence of a contractionary retail deposit channel.

Keywords:

negative interest rates, portfolio rebalancing, bank lending channel of monetary policy, liquidity management, Eurozone crisis.

JEL codes:

E52; E58; G01; G21, G28.

Area of Research:

Finance and Accounting / Macroeconomics and International Economics / Labour, Public, Development and Health Economics

Published in:

Journal of Financial Economics, 146 (2), Nov. 2022, pp. 754-778, DOI: https://doi.org/10.1016/j.jfineco.2021.11.004

Comment:

Previously circulated as ‘Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data’.

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