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Empirical Evidence of the Lending Channel of Monetary Policy under Negative Interest Rates

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  • Whelsy BOUNGOU

Abstract

Does the lending channel of monetary policy operate under a negative interest rate policy (NIRP)? The purpose of this study is to shed light on the existence of a lending channel of monetary policy under NIRP. To do so, we aim to provide an in-depth analysis of the relationship between NIRP and bank-lending behavior. To achieve this, we employ a large panel dataset of 4072 banks operating in 54 countries over the period 2009-2018 and a Difference-in-Differences methodology. We find that banks located in countries affected by negative interest rates have adjusted their bank-lending behavior by increasing lending activities. Our findings suggest that in response to negative interest rates, banks have reduced their lending cost, and increased lending supply, especially for loans longer than 3 months. Finally, we also find that the transmission of monetary policy under negative interest rates to the real economy depends on banks' specific characteristics such as reliance on retail deposits and size.

Suggested Citation

  • Whelsy BOUNGOU, 2020. "Empirical Evidence of the Lending Channel of Monetary Policy under Negative Interest Rates," Bordeaux Economics Working Papers 2020-16, Bordeaux School of Economics (BSE).
    • Handle: RePEc:grt:bdxewp:2020-16
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    File URL: http://bordeauxeconomicswp.u-bordeaux.fr/2020/2020-16.pdf
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    1. Boungou, Whelsy & Hubert, Paul, 2021. "The channels of banks’ response to negative interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 131(C).
    2. Kyriazis, Nikolaos & Corbet, Shaen, 2024. "Evaluating the dynamic connectedness of financial assets and bank indices during black-swan events: A Quantile-VAR approach," Energy Economics, Elsevier, vol. 131(C).
    3. Whelsy Boungou & Charles Mawusi, 2023. "Bank lending margins in a negative interest rate environment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 886-901, January.

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    More about this item

    Keywords

    Negative interest rates; Lending cost; Lending supply; Lending maturity; Difference-in-Differences estimation;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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