Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data

We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrativedata from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply---and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks withhigher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, notwith higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets tocredit-especially to riskier and smaller firms-and cut loan rates, inducing sizable real effects. Byshifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.