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Does the choice of monetary policy tool matter for systemic risk? The curious case of negative interest rates

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  • Iwanicz-Drozdowska, Małgorzata
  • Rogowicz, Karol

Abstract

This study evaluates the impact of a negative interest rate policy (NIRP) on systemic risk, covering a wide range of economies over a relatively long term. Monetary policy affects banks’ vulnerability to systemic risk events and the likelihood of triggering such events, particularly among institutions connected via the contagion network. With a rising magnitude of interest rate shocks, the effect on systemic risk becomes non-linear, being driven more by contagion, especially under NIRP. The uniqueness of the impact of NIRP may be characterized as arising from the evolution of the structure and intensity of impulse transmission while leaving the structure of the monetary policy transmission mechanism unaffected.

Suggested Citation

  • Iwanicz-Drozdowska, Małgorzata & Rogowicz, Karol, 2022. "Does the choice of monetary policy tool matter for systemic risk? The curious case of negative interest rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:intfin:v:79:y:2022:i:c:s1042443122000865
    DOI: 10.1016/j.intfin.2022.101608
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    More about this item

    Keywords

    Monetary policy; Systemic risk; Contagion effect; Negative interest rates; Network analysis;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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