Firm behaviour under negative deposit rates

Abstract

Using rich microdata from Denmark, the first country in the world to move its key monetary-policy rate below zero, we find that firms which become exposed to negative interest rates on their bank deposits increase their fixed investments and employment to a larger extent than what can be explained by the associated reduction in the level of interest rates. They also tend to rebalance their liquid portfolio, reduce their degree of leverage and become more inclined to change bank connections. Our results also indicate that it is the event of becoming exposed to negative rates (the extensive margin), not the share of deposits exposed to negative interest rates (the intensive margin), that matters for firm behaviour. These findings support the existence of a corporate channel of monetary transmission when bank deposit rates cross zero and become negative.