Working Paper: CEPR ID: DP14050
Authors: Carlo Altavilla; Lorenzo Burlon; Mariassunta Giannetti; Sarah Holton
Abstract: Exploiting confidential data from the euro area, we show that sound banks pass on negative rates to their corporate depositors without experiencing a contraction in funding and that the degree of pass-through becomes stronger as policy rates move deeper into negative territory. The negative interest rate policy provides stimulus to the economy through firms’ asset rebalancing. Firms with high cash-holdings linked to banks charging negative rates increase their investment and decrease their cash-holdings to avoid the costs associated with negative rates. Overall, our results challenge the common view that conventional monetary policy becomes ineffective at the zero lower bound.
Keywords: monetary policy; negative rates; lending channel; corporate channel
JEL Codes: E52; E43; G21; D2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| banks' health (G21) | ability to pass on rates (E43) |
| ability to pass on rates (E43) | maintain deposit levels (G21) |
| bank deposit rates (E43) | firm investment behavior (D21) |
| bank deposit rates (E43) | firm cashholdings (G32) |
| bank behavior (G21) | decrease funding costs (G21) |
| bank behavior (G21) | firm cashholdings (G32) |
| negative deposit rates (E43) | investment behavior (G11) |