Macro Risk Premium and Intermediary Balance Sheet Quantities

39 Pages Posted: 3 Feb 2010

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Emanuel Moench

Deutsche Bundesbank

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: January 1, 2010


The macro risk premium measures the threshold return for real activity that receives funding from savers. We base our argument in this paper on the relationship between the macro risk premium and the growth of financial intermediaries’ balance sheets. The spare capacity of their balance sheets determines the intermediaries’ risk appetite, which in turn determines the real projects that receive funding and, hence, the supply of credit. Monetary policy affects risk appetite by changing the ability of intermediaries to leverage their capital. We estimate the time-varying risk appetite of financial intermediaries for the United States, Germany, the United Kingdom, and Japan, and study the joint dynamics of risk appetite using macroeconomic aggregates for the United States. We argue that risk appetite is an important indicator of monetary conditions.

Keywords: monetary policy, financial intermediation, capital markets

JEL Classification: E44, E52, G00

Suggested Citation

Adrian, Tobias and Moench, Emanuel and Shin, Hyun Song, Macro Risk Premium and Intermediary Balance Sheet Quantities (January 1, 2010). FRB of New York Staff Report No. 428. Available at SSRN:

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

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


Emanuel Moench

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
+49 69 95662312 (Phone)

Hyun Song Shin

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002


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