The paper empirically studies the effect of the ECB's introduction of negative monetary policy rates on the behaviour of Italian banks and firms. In particular, the paper quantifies the consequences for the credit supply of reducing the rate on the deposit facility to -0.1 per cent and, more broadly, on the real economy, stressing the role of bank liquidity on which negative rates had the most direct impact. Negative monetary policy rates compressed the yields on more liquid financial assets, inducing banks to rebalance their portfolios towards loans to firms. The expansion in credit supply occurred through both lower interest rates on loans and larger loans being granted, benefiting in particular riskier and smaller firms. Easier access to credit had a positive impact on investment and wages.
Published in: Journal of Financial Economics, v. 146, 2, pp. 754-778