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

• Authors: José-Luis Peydró.
• BSE Working Paper: 112199 | May 19
• Keywords: negative interest rates , portfolio rebalancing , bank lending channel of monetary policy , liquidity management , Eurozone crisis
• JEL codes: E52, E58, G01, G21, G28
• negative interest rates
• portfolio rebalancing
• bank lending channel of monetary policy
• liquidity management
• Eurozone crisis

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.