Why Are Banks Exposed to Monetary Policy?

Sebastian Di Tella and Pablo Kurlat ()
Additional contact information
Sebastian Di Tella: Stanford University

Research Papers from Stanford University, Graduate School of Business

Abstract: We propose a model of banks' exposure to movements in interest rates and their role in the transmission of monetary shocks. Since bank deposits provide liquidity, higher interest rates allow banks to earn larger spreads on deposits. Therefore, if risk aversion is higher than one, banks' optimal dynamic hedging strategy is to take losses when interest rates rise. This risk exposure can be achieved by a traditional maturity mismatched balance sheet, and amplifies the effects of monetary shocks on the cost of liquidity. The model can match the level, time pattern, and cross-sectional pattern of banks' maturity mismatch.

JEL-codes: E41 E43 E44 E51 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/433546
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Journal Article: Why Are Banks Exposed to Monetary Policy? (2021)
Working Paper: Why are Banks Exposed to Monetary Policy? (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:repec:ecl:stabus:3525

Access Statistics for this paper

More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC.
Bibliographic data for series maintained by ().