> As shown in Figure 2, we find that exposure to negative deposit rates caused a strong decrease in deposits: the treatment group exposed in 2019 differentially reduced their total deposit balances in the banking system by DKK 90,000 during 2019–2020 relative to a baseline of DKK 1.1 million (Figure 2A). This estimate is remarkably large compared to what we find in a parallel analysis, where we estimate depositor responses to rate cuts in positive territory.
> What happened to the funds that flowed out of deposit accounts in response to negative rates? We estimate that around one-third was reallocated to other asset classes: individuals in the treatment group differentially increased their stock market holdings (Figure 2B) and contributions to illiquid pension accounts during 2019–2020 (Figure 2C). However, most of the reduction in deposit balances appears to reflect increased consumption. Imputing consumption from detailed administrative data on income and wealth (Jensen and Johannesen 2017, Holm et al. 2021), we find that the treatment group differentially increased annual consumption by around DKK 40,000 during 2019–2020 (Panel 2D). These estimates suggest a sizeable stimulating effect of negative monetary policy rates – in our case a contribution to aggregate private consumption of as much as 0.5%–1% in 2020 – at the time they pass through to households.
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> As shown in Figure 2, we find that exposure to negative deposit rates caused a strong decrease in deposits: the treatment group exposed in 2019 differentially reduced their total deposit balances in the banking system by DKK 90,000 during 2019–2020 relative to a baseline of DKK 1.1 million (Figure 2A). This estimate is remarkably large compared to what we find in a parallel analysis, where we estimate depositor responses to rate cuts in positive territory.
> What happened to the funds that flowed out of deposit accounts in response to negative rates? We estimate that around one-third was reallocated to other asset classes: individuals in the treatment group differentially increased their stock market holdings (Figure 2B) and contributions to illiquid pension accounts during 2019–2020 (Figure 2C). However, most of the reduction in deposit balances appears to reflect increased consumption. Imputing consumption from detailed administrative data on income and wealth (Jensen and Johannesen 2017, Holm et al. 2021), we find that the treatment group differentially increased annual consumption by around DKK 40,000 during 2019–2020 (Panel 2D). These estimates suggest a sizeable stimulating effect of negative monetary policy rates – in our case a contribution to aggregate private consumption of as much as 0.5%–1% in 2020 – at the time they pass through to households.