Asymmetric and dynamic analyses of the risk-taking channels of monetary policy in Ghana

Anthony Adu-Asare Idun ()
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Anthony Adu-Asare Idun: University of Cape Coast

SN Business & Economics, 2024, vol. 4, issue 4, 1-41

Abstract: Abstract The paper examined the banking system risk-taking channels of monetary policy in Ghana. Within time and frequency spectrum, the study also explored the impact of the COVID-19 pandemic in the monetary policy channels of banking system risk-taking. The methods used include bivariate wavelet and the NARDL techniques to explore the dynamic interconnectedness among monetary policy indicators and banking system stability measures. The period of the study ranges from 2007m1 to 2023m4. The results show that expansive monetary policy can influence the equity coverage risk, asset portfolio risk and the overall stability of the banking system in the short-to-intermediate time frame. The results also show that the dynamic causal effects of the monetary policy channels on banks’ risk-taking are aggravated during periods of financial crises and the global COVID-19 pandemic. Also, the evidence of lead–lag causality mostly flows from the monetary policy indicators to banking system stability indicators. These results were mostly robust when the study also used the nonlinear ARDL (NARDL) estimation technique. In the long run, we found that the shocks in the growth in the reserve money drive asset portfolio risks and overall risk-taking in the banking system. The implication is that because of cyclical events, monetary policy should consider uncertainties when it is channelled to induce the soundness of the banking system. In the end, accumulation of reserves can provide a financial safety net to the banks in mitigating financial crises. In the long run, the results also imply that quantitative easing approaches that boost money supply may not help achieve the banking system’s stability.

Keywords: Banking system stability; Nonlinear ARDL; Monetary policy channels; Cointegration; Wavelet analysis; Ghana (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s43546-024-00639-0

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