Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data
60 Pages Posted: 8 Apr 2019
Date Written: February 2019
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: Suggested Citation