Financial Intermediaries and Monetary Economics

75 Pages Posted: 20 Oct 2009 Last revised: 10 Nov 2010

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: May 2010

Abstract

We reconsider the role of financial intermediaries in monetary economics. We explore the hypothesis that financial intermediaries drive the business cycle by way of their role in determining the price of risk. In this framework, balance sheet quantities emerge as a key indicator of risk appetite and hence of the “risk-taking channel” of monetary policy. We document evidence that the balance sheets of financial intermediaries reflect the transmission of monetary policy through capital market conditions. We find short-term interest rates to be important in influencing the size of financial intermediary balance sheets. Our findings suggest that the traditional focus on the money stock for the conduct of monetary policy may have more modern counterparts, and we suggest the importance of tracking balance sheet quantities for the conduct of monetary policy.

Keywords: financial intermediation, monetary policy, risk-taking channel

JEL Classification: E00, E02, G28

Suggested Citation

Adrian, Tobias and Shin, Hyun Song, Financial Intermediaries and Monetary Economics (May 2010). FRB of New York Staff Report No. 398. Available at SSRN: https://ssrn.com/abstract=1491603 or http://dx.doi.org/10.2139/ssrn.1491603

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.tobiasadrian.com

Hyun Song Shin

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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