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Title: Risk-Taking Channel of Monetary Policy

Author(s): Tobias Adrian, Arturo Estrella and Hyun Song Shin

Publication Date: February 2018

Keyword(s): risk taking channel of monetary policy

Programme Area(s): Financial Economics

Abstract: 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.

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Bibliographic Reference

Adrian, T, Estrella, A and Shin, H. 2018. 'Risk-Taking Channel of Monetary Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12677