Side effects of monetary easing in a low interest rate environment: reversal and risk-taking

Florian Heider and Agnese Leonello

Research Bulletin, 2021, vol. 87.2

Abstract: The effect of policy rate cuts on bank lending and risk-taking depends on how the low interest rate environment affects banks’ ability to raise external financing. When interest rates are low, easing monetary policy relaxes banks’ external financing constraint less than when interest rates are high. This reduces the stimulus to bank lending and induces banks to take more risk. There are indeed side effects of monetary stimulus at the zero-lower bound (ZLB). JEL Classification: E44, E52, E58, G20, G21

Keywords: bank credit supply; reversal rate; risk taking; Transmission of monetary policy; zero lower bound (search for similar items in EconPapers)
Date: 2021-09
Note: 276127
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Citations: View citations in EconPapers (1)

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