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Is There a Zero Lower Bound? The Effects of Negative Policy Rates on Banks and Firms

Carlo Altavilla (), Lorenzo Burlon (), Mariassunta Giannetti and Sarah Holton

No 14050, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Exploiting confidential data from the euro area, we show that sound banks pass negative rates on to their corporate depositors without experiencing a contraction in funding and that the tendency to charge negative rates becomes stronger as policy rates move deeper into negative territory. The negative interest rate policy (NIRP) provides stimulus to the economy through firms' asset rebalancing. Firms with high current assets linked to banks offering negative rates appear to increase their investment in tangible and intangible assets and to decrease their cash holdings to avoid the costs associated with negative rates. Overall, our results challenge the commonly held view that conventional monetary policy becomes ineffective when policy rates reach the zero lower bound.

Keywords: corporate channel; Lending Channel; monetary policy; negative rates (search for similar items in EconPapers)
JEL-codes: D2 E43 E52 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
Date: 2019-10
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