Risk-Taking Channel of Monetary Policy
28 Pages Posted: 5 Feb 2018
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: 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
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