Is There a Zero Lower Bound? The Effects of Negative Policy Rates on Banks and Firms

Mariassunta Giannetti, Carlo Altavilla, Lorenzo Burlon and Sarah Holton

No 14050, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: D2 E43 E52 G21 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (84)

Downloads: (external link)
https://cepr.org/publications/DP14050 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Is there a zero lower bound? The effects of negative policy rates on banks and firms (2022)
Working Paper: Is there a zero lower bound? The effects of negative policy rates on banks and firms (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:14050

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP14050

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().