Monetary policy effects on bank risk taking
Angela Abbate () and
No ECO2014/07, Economics Working Papers from European University Institute
The contribution of this paper is twofold. First, we provide empirical evidence on the existence of a risk-taking channel in the US economy. By identifying a Bayesian VAR through sign restrictions, we find that an expansionary monetary policy shock causes a persistent increase in proxies for bank risk-taking behaviour. We then develop a New Keynesian model with a risk-taking channel, where low levels of the risk free rates induce banks to extend credit to riskier borrowers. Conditional on calibration values, the simulated responses of key banking sector variables is compatible with the transmission mechanism observed in the data.
Keywords: Bank Risk; Monetary policy; DSGE Models; Bayesian Analysis (search for similar items in EconPapers)
JEL-codes: E12 E44 E58 C11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac, nep-mon and nep-rmg
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Working Paper: Monetary policy effects on bank risk taking (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2014/07
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