Expansionary Yet Different: Credit Supply and Real Effects of Negative Interest Rate Policy

69 Pages Posted: 28 May 2020 Last revised: 22 Nov 2021

See all articles by Margherita Bottero

Margherita Bottero

Bank of Italy

Camelia Minoiu

Federal Reserve Bank of Atlanta

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Andrea Polo

Luiss Guido Carli University - Department of Economics and Finance; Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Andrea Presbitero

International Monetary Fund (IMF); Centre for Macroeconomics & Finance Research (CeMaFiR)

Enrico Sette

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: August 09, 2021

Abstract

We show that negative interest rate policy (NIRP) has expansionary effects on credit supply through a portfolio rebalancing channel. By shifting down and flattening the yield curve, NIRP differs from rate cuts just above the zero-lower-bound and has effects similar to QE. For identification, we exploit ECB's NIRP and the Italian credit register, and, for external validity, European and U.S. datasets. NIRP affects more banks with higher ex-ante liquid assets, including net interbank positions. More exposed banks reduce liquid assets, expand credit supply, especially to financially-constrained firms, and cut loan rates, inducing firms to increase investment and the wage bill.

Keywords: negative nominal interest rates; firm-level real effects; portfolio rebalancing; liquidity management; monetary policy

JEL Classification: G21; E52; E58

Suggested Citation

Bottero, Margherita and Minoiu, Camelia and Peydro, Jose-Luis and Polo, Andrea and Presbitero, Andrea and Sette, Enrico, Expansionary Yet Different: Credit Supply and Real Effects of Negative Interest Rate Policy (August 09, 2021). Bank of Italy Temi di Discussione (Working Paper) No. 1269, Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3612936 or http://dx.doi.org/10.2139/ssrn.3612936

Margherita Bottero (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Camelia Minoiu

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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/

Andrea Polo

Luiss Guido Carli University - Department of Economics and Finance ( email )

Via Kennedy 6
Parma, 43100 - I
Italy

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

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

Andrea Presbitero

International Monetary Fund (IMF) ( email )

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

Centre for Macroeconomics & Finance Research (CeMaFiR) ( email )

Piazza Mirabello 2
Milan, 20100
Italy

Enrico Sette

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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