ADBI Annual Conference 2016: The Implications of Ultra-Low and Negative

Interest Rates for Asia

The Implementation and Transmission of

Negative Interest Rate Policies in
Europe and Japan: The Bank Lending Channel
Stefan Angrick Naoko Nemoto
Asian Development Bank Institute
The views expressed herein are those of the authors and do not necessarily reflect those
(if any) of the organisations which the authors have been, or are now, associated with.

The views expressed in this presentation are the views of the author and do not
necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI),
the Asian Development Bank (ADB), its Board of Directors, or the governments they
represent. ADBI does not guarantee the accuracy of the data included in this paper and
accepts no responsibility for any consequences of their use. Terminology used may not
necessarily be consistent with ADB official terms.
 Introduction
Adoption of negative interest rate policy (NIRP) in Euro
Area and Western Europe 2014-2015
Adoption of NIRP in Japan and Hungary in 2016
Motivated by sub-par growth and low inflation figures
(Potential) positive and negative effects actively debated
Institutional analysis of implementation of NIRP
Quantitative analysis of effect on bank credit growth

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 Euro Area policy rates

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 Denmark policy rates

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 Switzerland policy rates

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 Sweden policy rates

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 Japan policy rates

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 Hungary policy rates

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 Transmission and effects
Effective rate depends on operational set-up, exemptions
Transmission via
Bank lending channel
Asset valuation & portfolio channel
Exchange rate channel
Expectations channel
Easing of funding conditions vs. negative effect on bank
profitability, maturity risk for insurance/pension funds,
competitive devaluation, financial system instability

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 Empirical analysis
Effect of macroeconomic and financial measures, together
with interest rates, NIRP dummies and interaction terms,
on growth of bank credit, total credit, credit to households
Panel of 17 countries, NIRP and Non-NIRP, compiled from
BIS, CEIC, IMF and S&P statistics
Quarterly-frequency data, 2004Q1 to 2016Q2
Lags of four-quarter moving averages to account for
autoregressive behaviour
Fixed effects estimation

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 Main estimation results
Growth of bank credit
bank.credit.gr.yoy bank.credit.gr.yoy bank.credit.gr.yoy bank.credit.gr.yoy bank.credit.gr.yoy bank.credit.gr.yoy
(1) (2) (3) (4) (5) (6)
bank.credit.gr.yoy.ma.l1 0.667*** 0.686*** 0.686*** 0.672*** 0.695*** 0.703***
gdp.gr.yoy.real 0.405*** 0.220*** 0.225*** 0.401*** 0.239*** 0.241***
xm.gdp.ma -1.665*** -1.501*** -1.477*** -1.640*** -1.337*** -1.243***
unemp.yoy -0.985*** -0.368** -0.413** -0.981*** -0.309** -0.326*
npl.ma -0.429*** -0.372** -0.349** -0.435*** -0.430*** -0.414**
dsr.priv -0.198 -0.209 -0.184 -0.188
spp.yoy.pc 0.076** 0.084** 0.074** 0.078**
shares.yoy.pc.ma 0.038*** 0.035** 0.036*** 0.034**
exra.pc 0.043 0.033
longshort.spread.ma 0.038 -0.023
ibor.real.ma 0.038 0.118 0.210
ibor.real.ma.nirp -1.128 0.178 0.164
longrate.real.ma 0.008 -0.122 -0.126
longrate.real.ma.nirp -0.012 0.434 0.429
factor(nirp)1 -0.577 -0.317 -0.246 -0.660 -0.886** -0.959*
*p<0.1;**p<0.05;***p<0.01; Clustered Standard Errors

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 Robustness checks
Growth of total credit & credit to households
credit.gr.yoy credit.gr.yoy credit.hh.gr.yoy credit.hh.gr.yoy
(1) (2) (3) (4)
credit.gr.yoy.ma.l1 0.748*** 0.766***
credit.hh.gr.yoy.ma.l1 0.753*** 0.770***
gdp.gr.yoy.real 0.131 0.132 0.099 0.117
xm.gdp.ma -0.446 -0.417 -0.304 -0.182
unemp.yoy -0.357*** -0.327*** -0.193 -0.141
npl.ma -0.228* -0.254* -0.385 -0.414
dsr.priv -0.169 -0.167 -0.145** -0.133**
spp.yoy.pc 0.041 0.034 0.089*** 0.084***
shares.yoy.pc.ma 0.023 0.023* 0.011 0.009
exra.pc 0.100*** 0.098*** 0.041 0.036
longshort.spread.ma -0.311 -0.372* 0.207 0.201
ibor.real.ma 0.141 0.107
ibor.real.ma.nirp 1.346* 1.522*
longrate.real.ma 0.031 -0.099
longrate.real.ma.nirp 0.255 0.421
factor(nirp)1 -1.176** -1.465*** -0.114 -0.586

*p<0.1;**p<0.05;***p<0.01; Clustered Standard Errors

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 Conclusion
Growth of bank credit, and growth of other credit
aggregates, influenced largely by macroeconomic and
financial factors
Influence of interest rates less significant, negligible
Signs of pro-cylicality, non-linearity
Caution warranted in future application of NIRP
Extension of project: Longer, higher-frequency data series;
examination of other channels (aside from bank lending);
microeconomic analysis

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Thank you for your attention.

Stefan Angrick, sangrick@adbi.org

Naoko Nemoto, nnemoto@adbi.org
Asian Development Bank Institute
Kasumigaseki Building 8F
3-2-5, Kasumigaseki, Chiyoda-ku
Tokyo 100-6008, Japan

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