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Monetary policy, excessive risk-taking and banking crisis

Taha Zaghdoudi ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the relationship between monetary policy and banks excessive risk-taking and banking crisis. We use a panel of data consisting of 22 Latin American countries, the OECD and South-East Asia, which experienced banking crises between 1990 and 2013. Our empirical results show that the adoption of an expansionary monetary policy via an increase in the money supply and the application of low interest rates over an extended period of time may induce an increase in banks risk-taking. However, a restrictive monetary policy with high interest rates increases the risk of banking crisis.

Keywords: Monetary policy; bank risk; panel co-integration test (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 G21 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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