Risk-Taking Channel of Monetary Policy

28 Pages Posted: 5 Feb 2018

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Arturo Estrella

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: February 2018

Abstract

One of the most robust stylized facts in macroeconomics is the forecasting power of the term spread for future real activity. We propose a possible causal mechanism for the forecasting power of the term spread, deriving from the balance sheet management of financial intermediaries and the risk-taking channel of monetary policy. Monetary tightening leads to the flattening of the term spread, reducing net interest margin and credit supply. We provide empirical support for the risk-taking channel.

Keywords: risk taking channel of monetary policy

Suggested Citation

Adrian, Tobias and Estrella, Arturo and Shin, Hyun Song, Risk-Taking Channel of Monetary Policy (February 2018). CEPR Discussion Paper No. DP12677. Available at SSRN: https://ssrn.com/abstract=3118325

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

No contact information is available for Arturo Estrella

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