Monetary policy and risk taking : [draft december 2011]

  • We assess, through VAR evidence, the effects of monetary policy on banks’ risk exposure and find the presence of a risk-taking channel. A model combining fragile banks prone to risk mis-incentives and credit constrained firms, whose collateral fluctuations generate a balance sheet channel, is used to rationalize the evidence. A monetary expansion increases bank leverage. With two consequences: on the one side this exacerbates risk exposure; on the other, the risk spiral depresses output, therefore dampening the conventional amplification effect of the financial accelerator.

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Author:Ignazio AngeloniORCiDGND, Ester FaiaGND, Marco Lo Duca
Parent Title (German):Bruegel working paper ; 2010,00
Place of publication:Bruegel
Document Type:Working Paper
Year of Completion:2010
Year of first Publication:2010
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2014/08/12
Tag:bank behavior; financial accelerator; leverage; monetary policy
Issue:This draft: December 2011
Page Number:46
Last Page:45
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht