Optimal monetary policy with the risk-taking channel

Abbate, Angela; Thaler, Dominik

doi:10.1016/j.euroecorev.2022.104333

Cited by 3 publications

(2 citation statements)

References 31 publications

(32 reference statements)

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“…Since the onset of the crisis, an ever-increasing interest on the connection between the financial system and the monetary policies has surfaced. It is widely believed that the 2008 global crisis was the result of the wrong incentives in the financial markets that led to the financial institutions to take excessive financial leverage and more risk (Delis and Kouretas, 2011;Lopez et al, 2012;Abbate and Thaler, 2014;Angeloni et al, 2015). Here, the main idea is the thesis that the expansive monetary policy, in other words the low interest rates and abundance of liquidity (and add the not properly functioning supervision and control mechanisms to this formula) may increase the financial market imbalances by encouraging the financial units towards riskier assets.…”

Section: Literature Reviewmentioning

confidence: 99%

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Does the Risk-Taking or Risk-Shifting Channel of Monetary Policy Work in Developing Countries? Evidence From TVP-Var Approach

Yıldırım

Erdoğan

Esen

et al. 2023

Yönetim Ve Ekonomi Araştırmaları Dergisi

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In the study, the validity of the risk-taking channel was investigated using the monthly data between 2003 and 2018, in particular for Brazil, South Africa and Turkey countries. According to test results, for Turkey the response of leverage rate to unexpected increases in policy interest rate was measured positively; for Brazil it was measured positively and for South Africa, it was measured positively during the sample period. Finally, for all countries the reaction of industrial production to shocks in the policy interest rate was calculated to be negative during the sample period. Thus, it is concluded that the risk-taking channel is effective for these countries during the analysis period (especially in times of crisis), and that monetary policy could be used as an effective tool for managing macroeconomic risk.

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Section: Literature Reviewmentioning

confidence: 99%

“…this process, they also modified the risk taking behaviour of the financial institutions (Delis and Kouretas, 2011;Abbate and Thaler, 2014). Within this context, the financial intermediary institutions assumed a new function through "risk taking" in the transmission of the monetary policies.…”

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confidence: 99%