Is there a zero lower bound? The effects of negative policy rates on banks and firms

Carlo Altavilla, Lorenzo Burlon, Mariassunta Giannetti and Sarah Holton

No 2289, Working Paper Series from European Central Bank

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. JEL Classification: E52, E43, G21, D22, D25

Keywords: corporate channel; lending channel; monetary policy; negative rates (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-mon
Note: 2279334
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Citations: View citations in EconPapers (102)

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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)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192289

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