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

Margherita Bottero and Enrico Sette

No 1269, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

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.

Keywords: negative interest rates; portfolio rebalancing; bank lending channel of monetary policy; liquidity management; Eurozone crisis (search for similar items in EconPapers)
JEL-codes: E52 E58 G01 G21 G28 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-ifn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Expansionary yet different: Credit supply and real effects of negative interest rate policy (2022)
Working Paper: Expansionary yet different: credit supply and real effects of negative interest rate policy (2020)
Working Paper: Expansionary Yet Different: Credit Supply and Real Effects of Negative Interest Rate Policy (2020)
Working Paper: Expansionary Yet Different: Credit Supply and Real Effects of Negative Interest Rate Policy (2019)
Working Paper: Expansionary Yet Different: Credit Supply and Real Effects of Negative Interest Rate Policy (2019)
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