Article ; Online: Measuring the effect of negative interest rate on New Zealand banks.
SN business & economics
2021 Volume 1, Issue 3, Page(s) 49
Abstract: We derive an equilibrium lending and deposit rates from a constrained profit optimization model, and estimated them over the period from 1999 to 2020. Then, dynamic stochastic baseline projections of these equilibrium rates and bank profit, and their ... ...
Abstract | We derive an equilibrium lending and deposit rates from a constrained profit optimization model, and estimated them over the period from 1999 to 2020. Then, dynamic stochastic baseline projections of these equilibrium rates and bank profit, and their projections under a counterfactual scenario of a negative interest rate, were produced for the period 2020-2024. The model predicts that a negative official cash rate (OCR) lowers the lending and deposit rates on average over the period Jun 2020 to Dec 2024; but the lending rate is higher than the deposit rate. It also increases the volatility of these rates relative to baseline projections. Negative OCR increases both incomes and costs; however, bank profit increases on average, by about 19% relative to baseline projections over the period Sep 2020 to Dec 2024. However, that increase of bank profit is associated with more uncertainty. |
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Language | English |
Publishing date | 2021-02-24 |
Publishing country | Switzerland |
Document type | Journal Article |
ISSN | 2662-9399 |
ISSN (online) | 2662-9399 |
DOI | 10.1007/s43546-020-00038-1 |
Database | MEDical Literature Analysis and Retrieval System OnLINE |
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