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Discussion Paper Details

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Title: Expansionary Yet Different: Credit Supply and Real Effects of Negative Interest Rate Policy

Author(s): Margherita Bottero, Camelia Minoiu, Jos� Luis Peydr�, Andrea Polo, Andrea Presbitero and Enrico Sette

Publication Date: December 2019

Keyword(s): bank lending channel of monetary policy, eurozone crisis, Liquidity management, Negative Interest Rates and Portfolio rebalancing

Programme Area(s): Financial Economics, International Macroeconomics and Finance and Monetary Economics and Fluctuations

Abstract: We show that negative interest rate policy (NIRP) has expansionary effects on bank credit supply-and the real economy-through a portfolio rebalancing channel, and that, by shifting down and flattening the yield curve, NIRP differs from rate cuts just above the zero lower bound. For identification, we exploit ECB's NIRP and matched administrative datasets-including the credit register-from Italy, severely hit by the Eurozone crisis. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets. NIRP-affected banks rebalance their portfolios from liquid assets to lending, especially to ex-ante riskier and smaller firms-without higher ex-post delinquencies-and cut loan rates (even to the same firm), inducing sizable firm-level real effects. By contrast, there is no evidence of a retail deposits channel associated with NIRP.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14233

Bibliographic Reference

Bottero, M, Minoiu, C, Peydr�, J, Polo, A, Presbitero, A and Sette, E. 2019. 'Expansionary Yet Different: Credit Supply and Real Effects of Negative Interest Rate Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14233