Expansionary Yet Different: Credit Supply and Real Effects of Negative Interest Rate Policy
64 Pages Posted: 28 May 2020 Last revised: 17 Sep 2020
Date Written: September 16, 2020
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
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