Monetary Cycles, Financial Cycles and the Business Cycle

Adrian, Tobias; Estrella, Arturo; Song, Hyun Seok; Shin, Jae Hoon

doi:10.2139/ssrn.1532309

Cited by 67 publications

(60 citation statements)

References 23 publications

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“…Borio and Zhu (2012) coined the term "risk-taking channel of monetary policy", and Shin (2008, 2011) and Adrian, Estrella and Shin (2009) have explored the workings of the risk-taking channel for the United States. In this paper, we explore the workings of the risk-taking channel both domestically and in an international setting.…”

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confidence: 99%

Capital Flows and the Risk-Taking Channel of Monetary Policy

Bruno¹,

Shin²

2013

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We study the dynamics linking monetary policy with bank leverage and show that adjustments in leverage act as the linchpin in the monetary transmission mechanism that works through fluctuations in risk-taking. Motivated by the evidence, we formulate a model of the "risk-taking channel" of monetary policy in the international context that rests on the feedback loop between increased leverage of global banks and capital flows amid currency appreciation for capital recipient economies.

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confidence: 99%

Capital Flows and the Risk-Taking Channel of Monetary Policy

Bruno¹,

Shin²

2013

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“…As in Adrian and Shin's model [37], these choices are made to the detriment of productive loans: the credit rationing testifies to the limits of the interest rate tool, in a context where financial innovations allow substituting credits by other types of assets. On the opposite:…”

Section: Diversification: Decrease In Productive Assets and Increase mentioning

confidence: 99%

Banking Sector and Monetary Policy Transmission: Bank Capital, Credit and Risk-Taking Channels

Gilles¹,

Gauvin²,

Huchet³

2013

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In the literature, the question of central banks' responsibility for triggering crises is raised when sustainable low interest rates lead to excessive banks' risk exposures. However, such portfolio choices mainly depend on the various returns of assets and on the official interest rate, taking into account that the bank lending channel is affected by the bank capital channel. On the basis of a simple theoretical model including a solvency ratio, we show that during recessions a credit rationing is observed together with a flight to quality; during expansions monetary policy can induce both a fall in credit activity and an increase in financial instability. Then, regulatory capital arbitrages appear and still weaken productive loans. Conclusions can be drawn in terms of prudential policy, as the central bank may be powerless face to banking strategies if the regulatory framework is procyclical.

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“…À l'instar d 'Adrian et Shin (2010), ces choix s'effectuent au détriment des prêts à l'économie : ce rationnement relatif du crédit (par l'offre) témoigne d'une limite de l'outil du taux d'intérêt directeur dès lors que les innovations financières permettent aux banques de substituer des actifs négociables aux crédits traditionnels. A contrario :…”

Section: L'affaiblissement Du Canal Du Créditunclassified

“…Aux États-Unis, cette configuration s'explique aussi par l'épargne provenant du reste du monde, dont l'effet est de réduire les taux longs (Warnock et Warnock, 2006). Adrian et Shin (2010) montrent justement qu'un resserrement de taux peut limiter l'activité de crédit, suivant une efficacité qui dépend de la hausse des taux directeurs mais aussi de la structure par terme des taux d'intérêt, relativisant l'efficacité des politiques monétaires.…”

Section: Actifunclassified

Politique monétaire, choix de portefeuille du secteur bancaire et canal de la prise de risque

Gilles

Huchet

Gauvin

2013

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La responsabilité des banques centrales dans le déclenchement des crises est mise en cause lorsque des taux d’intérêt directeurs durablement bas favorisent des prises de risques excessives, notamment de la part des banques. Ces dernières réalisent également des choix en liaison avec la distorsion induite par l’existence de ratios de capital réglementaires, suivant le canal dit du capital bancaire. Dans ce contexte, un modèle simple centré sur le secteur bancaire permet de montrer comment le pilotage macroéconomique par les taux d’intérêt peut favoriser des arbitrages défavorables à l’activité traditionnelle de crédit et producteurs d’instabilité financière. La possibilité de titriser les créances peut renforcer la solvabilité bancaire, mais produit à son tour de nouveaux risques en liaison avec la création de monnaie par le secteur bancaire fantôme. Des résultats s’en dégagent en termes de politiques monétaire et prudentielle.The question of central banks’ partial liability for emerging crisis is raised when sustainable low interest rates lead to excessive risk exposures, especially if faced by banks. Portfolio choices also depend on the bank capital channel and may induce regulatory capital arbitrages. In this context, a simple model shows that monetary policy can induce both a fall in credit activity and an increase in financial instability. Moreover, securitization can enhance bank solvency, but also systemic risks through the shadow banking system. Conclusions can be drawn in terms of monetary and prudential policies

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Monetary Cycles, Financial Cycles and the Business Cycle

Cited by 67 publications

References 23 publications

Capital Flows and the Risk-Taking Channel of Monetary Policy

Capital Flows and the Risk-Taking Channel of Monetary Policy

Banking Sector and Monetary Policy Transmission: Bank Capital, Credit and Risk-Taking Channels

Politique monétaire, choix de portefeuille du secteur bancaire et canal de la prise de risque

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