State-dependent risk taking and the transmission of monetary policy shocks

Patrick Fève, Pablo Garcia Sanchez and Jean-Guillaume Sahuc

Economics Letters, 2018, vol. 164, issue C, 10-14

Abstract: Is risk taking an important channel by which monetary policy shocks affect economic activity? On the basis of a nonlinear structural VAR including a new measure of risk sensitivity by economic agents, we show that the role of the risk-taking channel depends on the state of the economy. While it is irrelevant during recession or normal times, it acts as an amplifier by boosting output during expansion. It means that, as long as monetary policy does not actively ”lean against the wind”, it may exacerbate boom-bust patterns.

Keywords: Risk-taking channel; Monetary policy; Boom-bust cycle (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: State-Dependent Risk Taking and the Transmission of Monetary Policy Shocks (2018)
Working Paper: State-dependent risk taking and the transmission of monetary policy shocks (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:164:y:2018:i:c:p:10-14

DOI: 10.1016/j.econlet.2017.12.024

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