Abstract
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.
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