seek to maintain interest margins, or negatively affect profitability, which could eventually weaken the transmission of monetary policy.

**_How have key financial variables evolved since the introduction of NIRP?_** Key financial variables have moved as implied by the standard transmission channels of monetary policy. For example, policy rate cuts to negative levels have been generally reflected in corresponding declines in money market rates and short-term government bond yields. The fall in bank wholesale funding costs has helped lower lending rates to varying degrees across countries. The decline in rates on new loans has been particularly notable in the euro area, although other policy initiatives make the specific contribution of NIRP difficult to isolate. The pass-through in other countries has been more limited. Inflation expectations have continued to decline in most NIRP economies. Currencies of countries implementing NIRP have on average depreciated since the corresponding policy decisions, with the exception of the appreciation of the Japanese yen and Swiss franc.

An event study indicates that money market rates and sovereign bond yields fall on the day of NIRP announcements, whereas inflation expectations do not change much and currency movements vary across countries. For the euro area, a comparison of the responses of key financial variables to announcements of NIRP, QE, and conventional interest rate cuts shows that the responses following NIRP are directionally consistent to those of conventional cuts, although somewhat smaller. Overall, despite its potential drawbacks, NIRP appear to have helped deliver additional monetary stimulus in a challenging macroeconomic environment.

**_How could NIRP affect financial stability?_** NIRP could pose risks to financial stability, particularly if rates go substantially below zero or if NIRP are employed for a protracted period of time. Adverse outcomes could include the erosion of profitability of banks and other financial intermediaries, and excessive risk taking. Available data so far provides inconclusive evidence of significant impact of NIRP on bank profitability. While some bank surveys indicate a perception among survey participants that NIRP are having an adverse impact on banks’ net income, bank lending margins remain within post-crisis ranges and credit growth has improved, albeit sluggishly in most cases. An event study also shows that the initial reaction of bank equity prices to NIRP announcements has been muted in most cases, while financial sector CDS spreads have generally declined on the announcement day.

Most central banks have introduced complementary policy measures to mitigate the potentially negative impact of NIRP on bank profitability. For example, in the case of the ECB, the implementation of NIRP was part of a package of measures including exceptionally favorable refinancing conditions for banks as well as expanded asset purchases. The BOJ, Riksbank, DNB, and SNB also implemented additional measures to alleviate pressure on bank earnings stemming from NIRP.

With the rising share of negative-yielding debt securities, pension and life insurance companies could struggle to generate adequate returns to meet their long-term liabilities. NIRP, as other unconventional monetary policies, could also encourage excessive risk-taking, which could 45