Empirical Evidence of the Lending Channel of Monetary Policy under Negative Interest Rates
25 Pages Posted: 27 Jan 2020 Last revised: 1 May 2020
Date Written: February 17, 2020
Is there a lending channel for monetary policy under negative interest rate policy (NIRP)? The purpose of this study is to shed light on the existence of a lending channel of monetary policy under NIRP. Concretely, we aim to provide an in-depth analysis of the relationship between NIRP and bank-lending behavior. To this end, we employ a large panel dataset of 5454 banks operating in 122 countries over the period 2009-2018 and a Difference-in-Differences methodology. We find that banks located in countries affected by negative interest rates have changed their bank-lending behavior, by increasing lending activity. The results suggest that in response to negative interest rates, banks have reduced their lending cost, and increased both lending supply and lending maturity. Finally, we also find that the transmission of monetary policy under negative interest rates to the real economy depends on banks' specific characteristics such as deposits, margins and size.
Keywords: Negative interest rates, Lending cost, Lending supply, Lending maturity, Difference-in-Differences estimation
JEL Classification: E43, E51, E52, F34, G21
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