Did Negative Interest Rates Improve Bank Lending?

Posted: 3 Jan 2019

See all articles by Philip Molyneux

Philip Molyneux

University of Sharjah - College of Business Administration

Alessio Reghezza

Bangor Business School

John Thornton

International Monetary Fund (IMF)

Ru Xie

University of Bath, School of management

Date Written: December 17, 2018

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 6558 banks from 33 OECD member countries over 2012-2016 and a matched difference-in differences estimator 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. 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 operated in more competitive markets.

Keywords: negative interest rates, monetary policy transmission, bank lending, difference in differences estimation, propensity score matching

JEL Classification: E43, E44, E52, G21, F34

Suggested Citation

Molyneux, Philip and Reghezza, Alessio and Thornton, John and Xie, Ru, Did Negative Interest Rates Improve Bank Lending? (December 17, 2018). Available at SSRN: https://ssrn.com/abstract=3302575 or http://dx.doi.org/10.2139/ssrn.3302575

Philip Molyneux

University of Sharjah - College of Business Administration ( email )

University City Road
Sharjah, 27272
United Arab Emirates

Alessio Reghezza

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

John Thornton

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Ru Xie (Contact Author)

University of Bath, School of management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Abstract Views
266
PlumX Metrics