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Journal of Financial Economics Vol. 146 No. 2 2022

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

Margherita Bottero1; Camelia Minoiu2; José-Luis Peydró3; Andrea Polo4; Andrea F. Presbitero5; Enrico Sette1

1 Bank of Italy · 2 Federal Reserve Board of Governors · 3 Imperial College London · 4 Libera Università Internazionale degli Studi Sociali Guido Carli · 5 International Monetary Fund

open access

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.

DOI
10.1016/j.jfineco.2021.11.004
Volume
146
Issue
2
Pages
754-778
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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