Negative Nominal Interest Rates and the Bank Lending Channel / Gauti B. Eggertsson, Ragnar E. Juelsrud, Lawrence H. Summers, Ella Getz Wold.

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Eggertsson, Gauti B

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w25416.Publication details: Cambridge, Mass. National Bureau of Economic Research 2019.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We investigate the bank lending channel of negative nominal policy rates from an empirical and theoretical perspective. We find that retail household deposit rates are subject to a lower bound (DLB). Empirically, once the DLB is met, the pass-through to lending rates and credit volumes is substantially lower and bank equity values decline in response to further policy rate cuts. We construct a banking sector model and use our estimate of the pass-through of negative policy rates to lending rates as an identified moment to parameterize the model and assess the impact of negative policy rates in general equilibrium. Using the theoretical framework, we derive a sufficient statistic for when negative policy rates are expansionary and when they are not.

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January 2019.

We investigate the bank lending channel of negative nominal policy rates from an empirical and theoretical perspective. We find that retail household deposit rates are subject to a lower bound (DLB). Empirically, once the DLB is met, the pass-through to lending rates and credit volumes is substantially lower and bank equity values decline in response to further policy rate cuts. We construct a banking sector model and use our estimate of the pass-through of negative policy rates to lending rates as an identified moment to parameterize the model and assess the impact of negative policy rates in general equilibrium. Using the theoretical framework, we derive a sufficient statistic for when negative policy rates are expansionary and when they are not.