Negative Nominal Interest Rates and the Bank Lending Channel

Gauti B. Eggertsson, Brown University, Ragnar E. Juelsrud, Norges Bank and BI Norwegian Business School, Lawrence H. Summers, Harvard University, and Ella Getz Wold, BI Norwegian Business School

We investigate the bank lending channel of negative nominal policy rates from an empirical and theoretical perspective. For the empirical results we rely on Swedish data, including daily banklevel lending rates. We find that retail household deposit rates are subject to a lower bound (DLB). Empirically, once the DLB is met, the pass-through to mortgage 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.