The cost of deviating from the optimal monetary policy: A panel VAR analysis

Chiara Guerello

Journal of Financial Stability, 2014, vol. 15, issue C, 210-229

Abstract: Exploiting the panel VAR GMM estimator's features, macroeconomic country factors are combined with micro-economic bank data to test for the risk taking channel in the Euro Area. According to prior expectations based on an extended DSGE model, the analysis demonstrates that the monetary policy incentives bank risk taking by increasing the bank leverage, but it is not able to influence the level of credit risk. However, deeper investigations indicates the Taylor gap adds to the bank risk appetite in all its forms, while regarding the reactions to target variables, movements in the interest rate smooth the bank risk.

Keywords: Risk taking channel; Taylor gap; Monetary policy; Credit risk; Panel VAR (search for similar items in EconPapers)
JEL-codes: E51 E52 G21 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:15:y:2014:i:c:p:210-229

DOI: 10.1016/j.jfs.2014.10.004

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