Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208317
Authors: 
Demiralp, Selva
Eisenschmidt, Jens
Vlassopoulos, Thomas
Year of Publication: 
2019
Series/Report no.: 
ECB Working Paper 2283
Abstract: 
Negative monetary policy rates are associated with a particular friction because the remuneration of retail deposits tends to be floored at zero. We investigate whether this friction affects banks' reactions when the policy rate is lowered to negative levels, compared to a standard rate cut in the euro area. We exploit the cross-sectional variation in banks' funding structures jointly with that in their excess liquidity holdings. We find evidence that banks highly exposed to the policy tend to grant more loans. This confirms studies that point to higher risk taking by banks as a reaction to negative rates. It, however, contrasts some earlier research associating negative rates with a contraction in loans. We illustrate that the difference is likely driven by the broader coverage of our loan data, longer time span of our sample and, importantly, the explicit consideration of the role of excess liquidity in our analysis.
Subjects: 
negative rates
bank balance sheets
transmission mechanism
JEL: 
E43
E52
G11
G21
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3545-6
Document Type: 
Working Paper

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