Fuzzy Capital Requirements, Risk-Shifting and the Risk Taking Channel of Monetary Policy

Dubecq, Simon; Mojon, Benoı̂t; Ragot, Xavier

doi:10.2139/ssrn.1630317

Cited by 58 publications

(19 citation statements)

References 34 publications

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“…tolerating lower credit standards), even if this raises firms' leverage ratios (as in Adrian and Shin, 2009) and default rates (as in Gonzàles-Aguado and Suarez, 2015). 7 Similarly, the recent literature on risk-shifting indicates that an accommodating interest rate policy "sows the seeds for the next crisis", by facilitating the financing of unworthy projects (Farhi and Tirole, 2012) and by worsening the misperception of risk (Dubecq et al, 2015). 8 Additional evidence, at the halfway between risk-shifting mechanisms and the bank capital Furthermore, as the probability of bank run is low in such a context, banks can more easily issue debt in order to grant riskier loans (Diamond and Rajan, 2006).…”

Section: The Theoretical Foundations Of the Systemic Risk-taking Channelmentioning

confidence: 99%

Monetary policy and long-run systemic risk-taking

Colletaz

Levieuge

Popescu

2018

Journal of Economic Dynamics and Control

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As an extension to the literature on the risk-taking channel of monetary policy, this paper studies the existence of a systemic risk-taking channel (SRTC) in the Eurozone, through an original macroeconomic perspective based on causality measures. Because the SRTC is effective after an "incubation period", we make a distinction between short and long-term causality, following the methodology proposed by Dufour and Taamouti (2010). We find that causality from monetary policy to systemic risk, while not significant in the very short term, robustly represents 75 to 100% of the total dependence between the two variables in the long run. Reverse causality is rejected: systemic risk did not influence the policy of the European Central Bank before the global financial crisis. However, central banks must be aware that a too loose monetary policy stance may be conducive to a build-up of systemic risk.

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Section: The Theoretical Foundations Of the Systemic Risk-taking Channelmentioning

confidence: 99%

Monetary policy and long-run systemic risk-taking

Colletaz

Levieuge

Popescu

2018

Journal of Economic Dynamics and Control

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“…Indeed our findings partly explain the low nominal interest rates before the crisis which could have increased the risk taken by financial intermediaries as it is emphasized by Dubecq et al (2009). Our microfoundation of the shock leading to such mechanism is however fragile and we do not argue that unbalanced globalization is only driven by shift in demand.…”

Section: Resultsmentioning

confidence: 56%

“…Following Hamilton (1994), we first estimate an ARMA (8,8) process to fit our series and then compute the theoretical spectral analysis of such estimated processes. We have to use high order lags and leads to ensure the theoretical autocorrelogram to fit the empirical one.…”

Section: Five Unit Roots For Fitting Multiple Macrovariablesmentioning

confidence: 99%

Global Imbalances and Imported Disinflation in the Euro Area

Barthélemy

Cléaud

2011

SSRN Journal

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“…Specifically, the risk-taking channel was defined as the impact on pricing of assets, financing costs and risk pricing from monetary policy, thereby affecting the perception of risk tolerance and financial institutions, and to further the credit of financial institutions and investment decisions, and ultimately act on financial stability and the total output. Dubecq proposed a model of risk transfer interest rates will affect the risk perception of investors that regulatory constraints in the uncertain situation could lead to market participants the risk of erroneous inference form [5]. In this case, the increase in asset prices will be interpreted as a lower overall economic risk, and in fact asset prices are driven by the high risks borne by financial intermediaries.…”

Section: Literature Reviewmentioning

confidence: 99%

An Empirical Analysis of the Risk Taking Channel of Monetary Policy in China—Base on Evidence from Chinese Listed Bank

Chen¹

2019

AJIBM

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After financial crisis in 2008, more and more researchers paid attention to not only the expansionary monetary policy but also the relationship between the risk-taking and monetary policy. Borio and Zhu firstly researched on risk-taking channel of monetary policy in 2008. This article firstly reviews some literature about the risk-taking channel of monetary policy, the transmission mechanism and the influencing factors, and then selects the data of 15 representative listed Banks in China from 2007-2016 to do empirical research and draw the following conclusions. First, this article finds evidence that the risk-taking channel of monetary policy is significant in China. Expansionary monetary policy has a positive impact on banks' risk-taking. Second, macroeconomic conditions and the micro characteristics of the bank can influence the transmission of risk-taking channel. Based on that, this article proposes the recommendation that monetary policy should be included in macro-prudential system to strengthen monitoring system of the bank's risk management. Besides the relationship between counter-cyclical capital regulation and monetary policy control is important.

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Fuzzy Capital Requirements, Risk-Shifting and the Risk Taking Channel of Monetary Policy

Cited by 58 publications

References 34 publications

Monetary policy and long-run systemic risk-taking

Monetary policy and long-run systemic risk-taking

Global Imbalances and Imported Disinflation in the Euro Area

An Empirical Analysis of the Risk Taking Channel of Monetary Policy in China—Base on Evidence from Chinese Listed Bank

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