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

56 Pages Posted: 30 Sep 2019 Last revised: 28 Oct 2020

See all articles by Carlo Altavilla

Carlo Altavilla

European Central Bank (ECB)

Lorenzo Burlon

European Central Bank (ECB)

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Sarah Holton

European Central Bank (ECB)

Multiple version iconThere are 3 versions of this paper

Date Written: October 27, 2020

Abstract

Exploiting confidential data from the euro area, we show that sound banks pass negative rates onto their corporate depositors and that the pass-through is not impaired when policy rates move deeper into negative territory. We do not observe a contraction in deposits. When their banks charge negative rates on deposits, firms with ex ante high liquidity increase their investment and decrease their liquid holdings. These results challenge the common view that conventional monetary policy becomes ineffective at the zero lower bound and indicate a novel mechanism of transmission that goes through high-liquidity firms’ assets rebalancing.

Keywords: monetary policy, negative rates, lending channel, corporate channel

JEL Classification: E52, E43, G21, D22, D25

Suggested Citation

Altavilla, Carlo and Burlon, Lorenzo and Giannetti, Mariassunta and Holton, Sarah, Is There a Zero Lower Bound? The Effects of Negative Policy Rates on Banks and Firms (October 27, 2020). Swedish House of Finance Research Paper No. 19-11, Available at SSRN: https://ssrn.com/abstract=3460947 or http://dx.doi.org/10.2139/ssrn.3460947

Carlo Altavilla

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Lorenzo Burlon

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Sarah Holton

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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