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Passing on negative interest rates

Author

Listed:
  • Stadtmann Georg

    (Europa-Universität Viadrina, Germany)

  • Moritz Karl-Heinz

    (Fachhochschule Erfurt, Germany)

  • Berthold Kristin

    (Europa-Universität Viadrina, Germany)

  • Stadtmann Tobias

    (Robert Schuman Berufskolleg, Germany)

Abstract

Since the ECB has lowered the interest rate on deposits into negative territory, more and more commercial banks are also passing on this negative interest rate to their customers. The main aim of this paper is to answer the question under which conditions the commercial banking sector will be more or less reluctant to pass the negative deposit rate on to its private customers. We first clarify the circumstances under which demand deposits and excess liquidity arise, and what role quantitative easing plays in this context. Within a game-theoretical framework, it is derived that the pressure to pass on the negative interest rate is particularly high if there are no switching costs, and the banking market follows a Bertrand competition.

Suggested Citation

  • Stadtmann Georg & Moritz Karl-Heinz & Berthold Kristin & Stadtmann Tobias, 2020. "Passing on negative interest rates," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 56(4), pages 283-290, December.
    • Handle: RePEc:vrs:ijomae:v:56:y:2020:i:4:p:283-290:n:1
    DOI: 10.2478/ijme-2020-0022
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    References listed on IDEAS

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    1. Baldo, Luca & Hallinger, Benoît & Helmus, Caspar & Herrala, Niko & Martins, Débora & Mohing, Felix & Petroulakis, Filippos & Resinek, Marc & Vergote, Olivier & Usciati, Benoît & Wang, Yizhou, 2017. "The distribution of excess liquidity in the euro area," Occasional Paper Series 200, European Central Bank.
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    More about this item

    Keywords

    excess liquidity; penalty interest; game theory; investor behavior;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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