Capital Flows and the Risk-Taking Channel of Monetary Policy

46 Pages Posted: 5 Apr 2013

See all articles by Valentina Bruno

Valentina Bruno

American University - Department of Finance and Real Estate

Hyun Song Shin

Bank for International Settlements (BIS)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2013

Abstract

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.

Suggested Citation

Bruno, Valentina Giulia and Shin, Hyun Song, Capital Flows and the Risk-Taking Channel of Monetary Policy (April 2013). NBER Working Paper No. w18942. Available at SSRN: https://ssrn.com/abstract=2245450

Valentina Giulia Bruno (Contact Author)

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

HOME PAGE: http://www.american.edu/kogod/faculty/bruno.cfm

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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