Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data

Margherita Bottero, Camelia Minoiu, Jose-Luis Peydro, Andrea Polo, Andrea Presbitero and Enrico Sette

No 2019/044, IMF Working Papers from International Monetary Fund

Abstract: We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.

Keywords: WP; exposure variable; bank control variables; credit supply; policy rate; total assets; yield curve; Negative interest rates; portfolio rebalancing; bank lending channel; liquidity management; Eurozone crisis; net interbank position; loan growth; bank characteristic; bank-issued securities; bank asset allocation; NIRP period; NIRP-affected bank; NIRP announcement; risk-reward calculus; Bank credit; Loans; Bank deposits; Credit; Central bank policy rate (search for similar items in EconPapers)
Pages: 59
Date: 2019-02-28
New Economics Papers: this item is included in nep-ban, nep-ifn, nep-mac and nep-mon
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Citations: View citations in EconPapers (56)

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