Monetary policy and risk taking

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Highlights• The financial and economic crisis has taught central banks a lesson. They were previously primarily concerned with maintaining price stability, but the crisis has produced evidence to show that monetary policy can contribute to the development (or the mitigation) of systemic risk in the financial sector. Monetary policy therefore needs to take financial stability implications into account, and the macroeconomic implications of bank supervision and regulation must also be considered.• It is therefore important to understand the linkages between financial risk, monetary policy and the business cycle. This paper considers the thinking to date on risk taking in monetary policy, presents comparative evidence for the euro area and the United States, and interprets the evidence using a macro dynamic stochastic general equilibrium model.• This approach produces three preliminary conclusions: central banks' monetary policy approaches affect, with time lags, the propensity of financial markets and banks to assume risk; it is possible to take account of these effects through macroeconomic models that embody optimising agents with limited information and include explicitly banking and financial sectors; and there is some indication that the modelling done in the paper can be used as the basis for predicting the relationship between monetary policy and the effect of risk on macroeconomic variables, though this area needs considerable further research. AbstractWe 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.

House prices, capital inflows and macroprudential policy

“…Several previous papers have explored the effects of macroprudential tools using stochastic general equilibrium models (e.g. Angeloni and Faia (2013), Angeloni et al (2010), Christensen et al (2011), Collard et al (2012, Schmitt-Grohe and Uribe (2012)). However, only a few studies have assessed the role of a dynamic use of macroprudential instruments in models of the housing market.…”

The safer, the riskier: A model of financial instability and bank leverage

“…Stein (2012) and Gersbach and Rochet (2012) discuss pecuniary externalities in models with banks.4 Examples include Farhi and Tirole (2012),Jiménez et al (2014), andMaddaloni and Peydró (2011). The low interest rate policy is closely related to the risk-taking channel of monetary policy Angeloni et al (2014). introduce demandable deposits as a disciplinary device inDiamond and Rajan (2001) into their dynamic stochastic general equilibrium model and study the monetary transmission in the model with endogenous probability of bank runs.…”

An analysis of involuntary excess reserves, monetary policy and risk-taking behaviour of Chinese Banks

“…For example, Gambacorta (2009);De Nicolò, Dell'Ariccia, Laeven, and Valencia (2010); Gaggl and Valderrama (2010); Angeloni, Faia, and Lo Duca (2010); Delis and Brissimis (2010); Delis and Kouretas (2011);Maddaloni and Peydró (2011);Michalak (2012) argue that banks' risk-taking increases when the central bank reduces policy interest rates or keeps interest rate too low for too long. Conversely, the studies of De Graeve et al (2008); Buch et al (2011) suggest that risk-taking decreases in response to the fall of monetary policy rates.…”