Did Negative Interest Rates Impact Bank Lending?

Philip Molyneux (), Rue Xie (), John Thornton and Alessio Reghezza ()
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Rue Xie: Bangor University

No 17002, Working Papers from Bangor Business School, Prifysgol Bangor University (Cymru / Wales)

Abstract: Since 2012 several central banks have introduced a negative interest rate policy (NIRP) aimed at boosting real spending by facilitating an increase in the supply and demand for bank loans. We employ a bank-level dataset comprising 16,675 banks from 33 OECD member countries over 2012-2016 and a difference-in-differences methodology to analyze whether NIRP resulted in a change in bank lending in NIRP-adopter countries compared to those that did not adopt the policy. Our results suggest that following the introduction of negative interest rates, bank lending was weaker in NIRP-adopter countries than in countries that did not adopt the policy. The result is robust to a wide range of checks. This adverse NIRP effect appears to have been stronger for banks that were smaller, more dependent on retail deposit funding, less well capitalized, had business models reliant on interest income, and operate in more competitive markets. NIRP also appears to have canceled out the stimulus impact of other forms of unconventional monetary policy

Keywords: Negative interest rates; monetary policy transmission; bank lending; difference in differences estimation (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 F34 G21 (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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