Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data

60 Pages Posted: 8 Apr 2019

See all articles by Margherita Bottero

Margherita Bottero

Bank of Italy

Camelia Minoiu

Federal Reserve Board

Jose-Luis Peydro

Catalan Institution of Research and Advanced Studies (ICREA); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Barcelona Graduate School of Economics (Barcelona GSE); Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR)

Andrea Presbitero

International Monetary Fund (IMF)

Enrico Sette

Bank of Italy

Date Written: February 2019

Abstract

We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrativedata from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply---and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks withhigher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, notwith higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets tocredit-especially to riskier and smaller firms-and cut loan rates, inducing sizable real effects. Byshifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.

Keywords: Bank credit, Reserve requirements, Interest rates on loans, Central banks, Bank liquidity, Negative interest rates, portfolio rebalancing, bank lending channel, liquiditymanagement, Eurozone crisis, interbank, credit supply, ex-ante, rebalance, negative rate

JEL Classification: E52, E58, G01, G21, G28, E01, D4, G2

Suggested Citation

Bottero, Margherita and Minoiu, Camelia and Peydro, Jose-Luis and Presbitero, Andrea and Sette, Enrico, Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data (February 2019). IMF Working Paper No. 19/44. Available at SSRN: https://ssrn.com/abstract=3367429

Margherita Bottero (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Camelia Minoiu

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jose-Luis Peydro

Catalan Institution of Research and Advanced Studies (ICREA) ( email )

P/ Lluis Companys 23
Barcelona, 08010
Spain

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

HOME PAGE: http://www.barcelonagse.eu/Faculty.php?id=432

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Andrea Presbitero

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Enrico Sette

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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