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

Does the lending channel of monetary policy operate under a negative interest rate policy (NIRP)? Thepurpose 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-lendingbehavior. To achieve this, we employ a large panel dataset of 4072 banks operating in 54 countriesover the period 2009–2018 and a Difference-in-Differences methodology. We find that banks locatedin countries affected by negative interest rates have adjusted their bank-lending behavior by increasinglending activities. Our findings suggest that in response to negative interest rates, banks have reducedtheir lending cost, and increased lending supply, particularly loans with maturities ranging from 3 to12 months and those over 5 years. Finally, we also find that the transmission of monetary policy undernegative interest rates to the real economy depends on banks’ specific characteristics such as reliance onretail deposits and size