The transmission of negative nominal interest rates in Finland

Despite the implementation of negative nominal interest rates by several advanced economies in the last decade, there is still much we do not know about the effectiveness of this instrument. In this paper, we analyze the pass-through of the European Central Bank’s changes in the deposit facility rate to mortgage rates in Finland between 2005 and 2020. We use monthly data and three different empirical methodologies: event studies, high-frequency identification, and exposure-measure regressions. We provide robust evidence that there continues to be pass-through of a cut in the policy rate to mortgage rates even when the policy rate is in negative territory, but that this pass-through is smaller than when the policy rate is in positive territory.