Negative Nominal Interest Rates and the Bank Lending Channel
By Gauti B. Eggertsson, Ragnar E. Juelsrud, Lawrence H. Summers, Ella Getz Wold. Social Science Research Network, 2019
228 citations recorded by the source corpus.
Following the crisis of 2008, several central banks engaged in a new experiment by setting negative policy rates. Using aggregate and bank level data, we document that deposit rates stopped responding to policy rates once they went negative and that bank lending rates in some cases increased rather than decreased in response to policy rate cuts. Based on the empirical evidence, we construct a macro-model with a banking sector that links together policy rates, deposit rates and lending rates. Once the policy rate turns negative, the usual transmission mechanism of monetary policy through the bank sector breaks down. Moreover, because a negative policy rate reduces bank profits, the total effect on aggregate output can be contractionary. A calibration which matches Swedish bank level data suggests that a policy rate of - 0.50 percent increases borrowing rates by 15 basis points and reduces output by 7 basis points.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/5029d3354234ee4ab3183208615a19ef3b08ac17
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- Philipp Schnabl
- Roberto Motto
- M. Rostagno
- I. Drechsler
- Alexi Savov
- Jonathan Yiangou
- Arthur Saint Guilhem
- Wolfgang Lemke
In Finance
- Carlo Altavilla
- Philipp Schnabl
- I. Drechsler
- Alexi Savov
- Roberto Motto
- M. Rostagno
- Giacomo Carboni
- Thomas Philippon
Citations in the corpus
- Banking on Deposits: Maturity Transformation without Interest Rate Risk (2018, background): “A growing literature examines the effect of prolonged periods of low interest rates on bank profitability and lending (Brunnermeier and Koby (2018), Eggertsson et al. (2019)).”
- A Tale of Two Decades: The Ecb's Monetary Policy at 20 (2019, background): “216 For an in-depth analysis of the link between APP and TARGET2 balances, see Eisenschmidt et al. (2017) and Hellwig and Schnabel (2019).”
- Banks, Liquidity Management, and Monetary Policy (2014, unknown): “In this regard, our paper relates to Ennis (2018), who analyzes the link between money and prices in a perfect-foresight model with a static banking system.”