Expansionary yet different: credit supply and real effects of negative interest rate policy

Bottero, Margherita; Minoiu, Camelia; Peydró, José-Luis; Polo, Andrea, 1983-; Presbitero, Andrea F.; Sette, Enrico

Expansionary yet different: credit supply and real effects of negative interest rate policy

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Citation

Journal of Financial Economics, 146 (2), Nov. 2022, pp. 754-778, DOI: https://doi.org/10.1016/j.jfineco.2021.11.004

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.