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

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.