The Risk-Taking Channel of Monetary Policy Transmission in the Euro-Area

35 Pages Posted: 11 Jun 2018

See all articles by Matthias Neuenkirch

Matthias Neuenkirch

University of Trier - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Matthias Nöckel

Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: April 19, 2018


In this paper, we provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through the relaxation of lending standards for borrowers. Our dataset covers the period 2003Q1-2016Q2 and includes, in addition to the standard variables for real GDP growth, inflation, and the monetary policy stance, indicators of bank lending standards and bank lending margins. Based on vector autoregressive models with (i) recursive identification and (ii) sign restrictions, we show that banks react aggressively to an expansionary monetary policy shock by lowering their lending standards. The banks’ efforts to keep their lending margin stable, however, are not successful as we detect a significant compression. We document these findings for the euro area as a whole and for its individual member states. In particular, banks in the Netherlands, Portugal, Spain, and Ireland lowered their lending standards after expansionary monetary policy shocks. The compression of the lending margin is most pronounced in the five crisis countries (Greece, Ireland, Italy, Portugal, and Spain).

Keywords: European Central Bank, macroprudential policy, monetary policy transmission, risk-taking channel, vector autoregression

JEL Classification: E440, E510, E520, E580, G280

Suggested Citation

Neuenkirch, Matthias and Nöckel, Matthias, The Risk-Taking Channel of Monetary Policy Transmission in the Euro-Area (April 19, 2018). CESifo Working Paper Series No. 6982. Available at SSRN:

Matthias Neuenkirch (Contact Author)

University of Trier - Faculty of Economics ( email )

Universitätsring 15
Trier, 54296
+49 - (0)651 - 201 - 2629 (Phone)


CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679

Matthias Nöckel

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431

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