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Did the BOJ’s negative interest rate policy increase bank lending?

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  • Hiroshi Gunji

    (Daito Bunka University)

Abstract

This study investigates the effects of the negative interest rate policy in Japan on bank lending using regression discontinuity design. On January 29, 2016, the Bank of Japan announced the beginning of the negative interest rate policy from February 16, 2016. As the financial market did not anticipate this policy, we use the event as a natural experiment. For a few months, starting from February 2016, a negative interest rate was levied on banks that held reserves exceeding the average monthly reserves of 2015. This allows us to employ regression discontinuity design. The results suggest an average treatment effect on the banks levied a negative interest rate of $$-$$ - 1.5% to $$-$$ - 3.5%. In other words, the loans of banks levied negative interest rates declined compared with those of banks that were not.

Suggested Citation

  • Hiroshi Gunji, 2025. "Did the BOJ’s negative interest rate policy increase bank lending?," The Japanese Economic Review, Springer, vol. 76(1), pages 91-120, January.
    • Handle: RePEc:spr:jecrev:v:76:y:2025:i:1:d:10.1007_s42973-023-00150-5
    DOI: 10.1007/s42973-023-00150-5
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    1. Czudaj, Robert L., 2020. "Is the negative interest rate policy effective?," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 75-86.
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    3. Florian Heider & Farzad Saidi & Glenn Schepens, 2019. "Life below Zero: Bank Lending under Negative Policy Rates," The Review of Financial Studies, Society for Financial Studies, vol. 32(10), pages 3728-3761.
    4. Phil Molyneux & Rue Xie & John Thornton & Alessio Reghezza, 2017. "Did Negative Interest Rates Impact Bank Lending?," Working Papers 17002, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
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    6. Molyneux, Philip & Reghezza, Alessio & Xie, Ru, 2019. "Bank margins and profits in a world of negative rates," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
    7. Andrew Gelman & Guido Imbens, 2019. "Why High-Order Polynomials Should Not Be Used in Regression Discontinuity Designs," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(3), pages 447-456, July.
    8. Thornton, John & Vasilakis, Chrysovalantis, 2019. "Negative policy interest rates and exchange rate behavior: Further results," Finance Research Letters, Elsevier, vol. 29(C), pages 61-67.
    9. Gauti B. Eggertsson & Ragnar E. Juelsrud & Ella Getz Wold, 2017. "Are Negative Nominal Interest Rates Expansionary?," NBER Working Papers 24039, National Bureau of Economic Research, Inc.
    10. Boungou, Whelsy, 2021. "Empirical evidence of the lending channel of monetary policy under negative interest rates," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 309-318.
    11. Alan I. Barreca & Melanie Guldi & Jason M. Lindo & Glen R. Waddell, 2011. "Saving Babies? Revisiting the effect of very low birth weight classification," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(4), pages 2117-2123.
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    14. Honda, Yuzo & Inoue, Hitoshi, 2019. "The effectiveness of the negative interest rate policy in Japan: An early assessment," Journal of the Japanese and International Economies, Elsevier, vol. 52(C), pages 142-153.
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    Cited by:

    1. Boungou, Whelsy, 2021. "Empirical evidence of the lending channel of monetary policy under negative interest rates," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 309-318.

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    More about this item

    Keywords

    Negative interest rate policy; Regression discontinuity design; Bank of Japan; Bank lending;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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