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

64 Pages Posted: 28 May 2020 Last revised: 17 Sep 2020

See all articles by Margherita Bottero

Margherita Bottero

Bank of Italy

Camelia Minoiu

Federal Reserve Board

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; Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Einaudi Institute for Economics and Finance (EIEF); Barcelona Graduate School of Economics (Barcelona GSE); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Andrea Presbitero

Johns Hopkins University

Enrico Sette

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: September 16, 2020

Abstract

We show that negative interest rate policy (NIRP) has expansionary effects on bank credit supply and firm outcomes through a portfolio rebalancing channel. For identification, we exploit ECB's NIRP and credit register, firm- and bank-level datasets. NIRP affects relatively more banks with higher ex-ante net interbank positions or more liquid balance sheets. More exposed banks reduce liquid assets, expand credit supply to ex-ante riskier firms, and cut rates, inducing sizable firm-level real effects. By shifting down and flattening the yield curve, NIRP differs from rate cuts just above the zero-lower-bound. We find no evidence of a contractionary retail deposit channel.

Keywords: negative interest rates, portfolio rebalancing, bank lending channel of monetary policy, liquidity management, euro area crisis

JEL Classification: E52, E58, G01, G21, G28

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 (September 16, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1269, 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 Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
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

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

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

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

Via Due Macelli, 73
Rome, 00187
Italy

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

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

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

Johns Hopkins University ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

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

Enrico Sette

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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