Risk-Taking Channel of Monetary Policy
Arturo Estrella and
Hyun Song Shin
No 12677, CEPR Discussion Papers from C.E.P.R. Discussion Papers
One of the most robust stylized facts in macroeconomics is the forecasting power of the term spread for future real activity. We propose a possible causal mechanism for the forecasting power of the term spread, deriving from the balance sheet management of financial intermediaries and the risk-taking channel of monetary policy. Monetary tightening leads to the flattening of the term spread, reducing net interest margin and credit supply. We provide empirical support for the risk-taking channel.
Keywords: Risk; taking; channel; of; monetary; policy (search for similar items in EconPapers)
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Journal Article: Risk‐taking channel of monetary policy (2019)
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