Working Paper: CEPR ID: DP14233
Authors: Margherita Bottero; Camelia Minoiu; Jos Luis Peydr; Andrea Polo; Andrea Presbitero; Enrico Sette
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—withouthigher 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.
Keywords: negative interest rates; portfolio rebalancing; bank lending; channel of monetary policy; liquidity management; eurozone crisis
JEL Codes: E52; E58; G01; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank credit supply (E51) | firm performance (L25) |
| higher liquidity and net interbank positions (F65) | response to NIRP (E43) |
| NIRP (E43) | portfolio rebalancing (G11) |
| NIRP (E43) | lending to riskier firms (G21) |
| NIRP (E43) | no retail deposits channel (G29) |
| NIRP (E43) | bank credit supply (E51) |
| NIRP (E43) | real economy (E29) |
| NIRP (E43) | lending rates (G21) |