Negative interest rate policy and bank lending channel: evidence from the Swedish experience

Onder Ozgur (), Erdal Tanas Karagol () and Fatih Cemil Ozbugday ()
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Onder Ozgur: Ankara Yıldırım Beyazıt University
Erdal Tanas Karagol: Ankara Yıldırım Beyazıt University
Fatih Cemil Ozbugday: Ankara Yıldırım Beyazıt University

International Economics and Economic Policy, 2025, vol. 22, issue 3, No 12, 28 pages

Abstract: Abstract This study investigates the effectiveness of negative interest rate policy (NIRP) in Sweden from 2010:01 to 2019:04, focusing on its impact on bank lending, market rates, and broader economic activity. The impacts of NIRP are isolated by incorporating a counterfactual scenario in which the policy rate remains at zero using a Factor-Augmented Vector Autoregression (FAVAR) model. The findings indicate that monetary policy continues to successfully transmit under negative rates, primarily through the lending and interest rate channels, while also improving economic activity and trade performance. The influence on inflation was, however, restricted, and we have not seen any substantial evidence of risk-taking behavior that is linked to portfolio rebalancing. The contribution of the paper is the application of a scenario-based approach and a data-rich empirical framework to assess NIRP in a macroeconomic environment.

Keywords: Bank lending channel; Negative interest rate policy; FAVAR methodology; Sweden (search for similar items in EconPapers)
JEL-codes: C3 E52 E58 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10368-025-00673-9

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