EconPapers    
Economics at your fingertips  
 

Monetary policy and the asset risk-taking channel

Angela Abbate () and Dominik Thaler
Additional contact information
Angela Abbate: Swiss National Bank

No 1805, Working Papers from Banco de España, Working Papers Homepage

Abstract: How important is the risk-taking channel for monetary policy? To answer this question, we develop and estimate a quantitative monetary DSGE model where banks choose excessively risky investments, due to an agency problem which distorts banks’ incentives. As the real interest rate declines, these distortions become more important and excessive risk taking increases, lowering the efficiency of investment. We show that this novel transmission channel generates a new and quantitatively significant monetary policy trade-off between inflation and real interest rate stabilization: it is optimal for the central bank to tolerate greater inflation volatility in exchange for lower risk taking.

Keywords: bank risk; monetary policy; DSGE models (search for similar items in EconPapers)
JEL-codes: E12 E44 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2018-02
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.bde.es/f/webbde/SES/Secciones/Publicac ... 18/Files/dt1805e.pdf First version, February 2018 (application/pdf)

Related works:
Working Paper: Monetary policy and the asset risk-taking channel (2015) Downloads
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:bde:wpaper:1805

Access Statistics for this paper

More papers in Working Papers from Banco de España, Working Papers Homepage Contact information at EDIRC.
Bibliographic data for series maintained by María Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de España ().

 
Page updated 2019-04-19
Handle: RePEc:bde:wpaper:1805