Does the choice of monetary policy tool matter for systemic risk? The curious case of negative interest rates

Małgorzata Iwanicz-Drozdowska and Karol Rogowicz

Journal of International Financial Markets, Institutions and Money, 2022, vol. 79, issue C

Abstract: This study evaluates the impact of a negative interest rate policy (NIRP) on systemic risk, covering a wide range of economies over a relatively long term. Monetary policy affects banks’ vulnerability to systemic risk events and the likelihood of triggering such events, particularly among institutions connected via the contagion network. With a rising magnitude of interest rate shocks, the effect on systemic risk becomes non-linear, being driven more by contagion, especially under NIRP. The uniqueness of the impact of NIRP may be characterized as arising from the evolution of the structure and intensity of impulse transmission while leaving the structure of the monetary policy transmission mechanism unaffected.

Keywords: Monetary policy; Systemic risk; Contagion effect; Negative interest rates; Network analysis (search for similar items in EconPapers)
JEL-codes: E40 E44 E59 G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:79:y:2022:i:c:s1042443122000865

DOI: 10.1016/j.intfin.2022.101608

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