Risk endogeneity at the lender/investor-of-last-resort

Diego Caballero, Andre Lucas, Bernd Schwaab and Xin Zhang

No 766, BIS Working Papers from Bank for International Settlements

Abstract: We address to what extent a central bank can de-risk its balance sheet by unconventional monetary policy operations. To that end, we propose a novel risk measurement framework to empirically study the time variation in central bank portfolio credit risks associated with such operations. The framework accommodates a large number of bank and sovereign counterparties, joint tail dependence, skewness, and time-varying dependence parameters. In an application to selected items from the consolidated Eurosystem's weekly balance sheet between 2009 and 2015, we find that unconventional monetary policy operations generated beneficial risk spillovers across monetary policy operations, causing overall risk to be non-linear in exposures. Some policy operations reduced rather than increased overall risk.

Keywords: credit risk; risk measurement; central bank; lender-of-last-resort; unconventional monetary policy (search for similar items in EconPapers)
JEL-codes: C33 G21 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2019-01
New Economics Papers: this item is included in nep-cba
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Risk endogeneity at the lender/investor-of-last-resort (2020)
Working Paper: Risk endogeneity at the lender/investor-of-last-resort (2019)
Working Paper: Risk endogeneity at the lender/investor-of-last-resort (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:766

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