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

Board of Governors of the Federal Reserve System

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: 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

Board of Governors of the Federal Reserve System ( 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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