Capital Flows and the Risk-Taking Channel of Monetary Policy
Valentina Bruno and
Hyun Song Shin
No 400, BIS Working Papers from Bank for International Settlements
This paper examines the relationship between low interests maintained by advanced economy central banks and credit booms in emerging economies. In a model with crossborder banking, low funding rates increase credit supply, but the initial shock is amplified through the "risk-taking channel" of monetary policy where greater risk-taking interacts with dampened measured risks that are driven by currency appreciation to create a feedback loop. In an empirical investigation using VAR analysis, we find that expectations of lower short-term rates dampen measured risks and stimulate cross-border banking sector capital flows.
Keywords: Capital flows; exchange rate appreciation; credit booms (search for similar items in EconPapers)
Pages: 57 pages
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon and nep-opm
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Journal Article: Capital flows and the risk-taking channel of monetary policy (2015)
Working Paper: Capital Flows and the Risk-Taking Channel of Monetary Policy (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:400
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