Implications of negative interest rate policies: An early assessment

Abstract

Over the past few years, several central banks have implemented negative interest rate policies (NIRP) to provide additional monetary policy stimulus. This paper presents an early assessment of the domestic and global implications of NIRP by analysing the behaviour of a set of key financial variables. We report three main results. First, since the introduction of NIRP, many of the key financial variables have evolved broadly, as implied by the standard transmission channels. For the euro area, the responses of these financial variables following NIRP announcements are directionally consistent with those of conventional interest rate cuts. Second, NIRP could pose risks to financial stability but there is no conclusive evidence as yet of a significant impact on bank profitability or of a broad-based increase in leverage. Third, the responses of assets of emerging market and developing economies to NIRP announcements are on average broadly consistent with those to other types of expansionary monetary policy measures.

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

“…, in line with recent evidence showing that bank profitability was generally resilient to NIRP (see, e.g Arteta et al (2018),Altavilla et al (2018),. IMF (2017),Lopez et al (2020) and ECB 2020).33 Third, retail deposit rates in Italy were low but not at zero prior to the introduction of NIRP, implying that there was some room for downward adjustment of deposit rates.Potentially Confounding Policies.…”

Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data

“…26 Recent reviews of country experiences conclude that bank profitability generally remained resilient, alleviating concerns about a possible contraction in credit (see, e.g. Arteta et al (2018), Altavilla et al (2018), IMF (2017), and Lopez et al (2018)). The experience of Denmark and Sweden, in particular, shows that NIRP did not reduce bank profitability due to banks' adoption of higher fees and commissions for banking services (Turk, 2016;Madaschi and Pablos Nuevos, 2017).…”

Negative Interest Rates, Bank Profitability and Risk-taking

“…Among others (Shin, 2016, Altavilla et al 2017Arteta et al 2018), the divergence in the effects of negative rates on bank profitability can be explained by: (i) the impact of monetary policy on macroeconomic conditions; (ii) the ability of banks to diversify their income sources (Scheiber et al 2016; Arseneau, 2017 and many others).…”