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 EconStor may AbstractWe develop a dynamic network model whose links are governed by banks' optmizing decisions and by an endogenous tâtonnement market adjustment. Banks in our model can default and engage in resales: risk is trasmitted through direct and cascading counterparty defaults as well as through indirect pecuniary externalities triggered by resales. We use the model to assess the evolution of the network conguration under various prudential policy regimes, to measure banks' contribution to systemic risk (through Shapley values) in response to shocks and to analyze the eects of systemic risk charges. We complement the analysis by introducing the possibility of central bank liquidity provision.

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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 Non-Technical SummaryThe question on whether monetary policy should target financial stability beyond price stability has a long tradition in monetary economics. The widespread use of unconventional tools for the conduct of monetary policy has made even more topical the question concerning the effects of this policy on financial stability and risk. The role of the monetary authority as a lender of last resort calls once more a reflection upon the trade-offs between the beneficial effects of increased liquidity and the detrimental effects of a potential increase in moral hazard and risk taking of financial intermediaries. In a situation of distress, as those generated by unexpected aggregate shocks to the value of assets, injection of liquidity might help the banking system to become more resilient due to the improved capacity to honor past debts. On the other side, as more liquidity becomes available, intermediaries tend to leverage more and invest more in risky assets, thereby increasing the exposure of their balance sheet to asset price swings.In the propagation of risk an important dimension is played by the interconnections among intermediaries. If one bank is hit for instance by a shock to the value of its investment, this event may have cascading effects as long as other intermediaries are exposed to the same bank. One can typically identify two transmission channels of risk among intermediaries. There are direct channels as the exposure on interbank debt. There are however also indirect channels of shocks transmissions: when all intermediaries invest in the same long term asset, the need of one intermediary to liquidate its asset to meet the capital requirement will trigger fire sales that have an impact on the value of balance sheets of other intermediaries. In this context injection of liquidity on the side of the monetary policy maker might induce the type of trade off described above.We explore the above-mentioned issues by building a network model of banks. Banks in our model are optimizing agents who choose how much to lend and borrow in the interbank market and how much to invest in terms of liquid and non-liquid assets. Shocks to one bank in our model get transmitted through cascading defaults of intermediaries. Using our model we explore the role of monetary policy which is conducted by injecting liquidity with a target interest rate. We find that, on balance, the risk taking effect prevails: as more liquidity b...

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