Monetary Policy Below Zero: An Empirical Investigation of the Reversal Rate

Zuzana Fungacova, Eeva Kerola and Olli-Matti Laine
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Zuzana Fungacova: Bank of Finland Institute for Emerging Economies (BOFIT)
Eeva Kerola: Bank of Finland
Olli-Matti Laine: Bank of Finland

International Journal of Central Banking, 2026, vol. 22, issue 3, 207-252

Abstract: This study considers the transmission of ECB monetary policy measures to bank corporate lending rates of different maturities from 2010 to 2020. Overall, the transmission of short-term policy rates to lending rates appears to have become weaker when below zero. We observe some signs of the reversal rate during the 2014–20 period, but the evidence is stronger as negative rates become more persistent during the low-for-long period starting in 2016. The emergence of the reversal rate is more pronounced for banks more exposed to negative rates and loans of longer maturities. Unconventional monetary policy measures seem to have mitigated these contractionary effects.

Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2026:q:3:a:5

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