Interest Rate Shocks, Household Portfolios and Bank Deposits

The introduction of a negative policy rate leads to an immediate reallocation of investment flows by retail investors. Investors allocate less funds to fixed income securities, and more funds to both money-like bank deposits and risky assets. Changes in asset flows are short-lived though, leading to only a minor reallocation of portfolio holdings. The analysis presented in this ZEW Research Seminar is based on monthly, account-level data covering itemized securities and deposit holdings for a large sample of bank clients. In the authors’ main analysis, they examine the response of investors’ portfolios to the introduction of a negative policy rate in Switzerland in January 2015. Examining heterogeneity across the wealth distribution, the authors find that the reallocation of assets is more pronounced among higher-wealth investors. These findings have important consequences for their understanding of household money demand and the credit channel of monetary policy. They also inform policy makers on how monetary policy conditions affect risk-taking by retail investors.