Working Paper: CEPR ID: DP15611
Authors: Florian Heider; Farzad Saidi; Glenn Schepens
Abstract: In this paper, we survey the nascent literature on the transmission of negative policy rates. We discuss the theory of how the transmission depends on bank balance sheets, and how this changes once policy rates become negative. We review the growing evidence that negative policy rates are special because the pass-through to banks' retail deposit rates is hindered by a zero lower bound. We summarize existing work on the impact of negative rates on banks' lending and securities portfolios, and the consequences for the real economy. Finally, we discuss the role of different "initial" conditions when the policy rate becomes negative, and potential interactions between negative policy rates and other unconventional monetary policies.
Keywords: Deposits; Negative Interest Rates; Zero Lower Bound; Bank Lending; Bank Risk Taking; Euro-Area Heterogeneity
JEL Codes: E44; E52; E58; G20; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Negative policy rates (E43) | Different transmission across banks (G21) |
| Reliance on deposit funding (G21) | Lending capabilities (G21) |
| High reliance on deposits (G21) | Hard zero lower bound for retail deposit rates (E43) |
| Hard zero lower bound for retail deposit rates (E43) | Decrease in lending capabilities (G21) |
| Negative policy rates (E43) | Less lending and increased risk-taking by banks with high reliance on deposits (G21) |
| High-deposit banks (G21) | Shift in lending behavior after introduction of negative rates (G21) |