Discussion paper

DP12677 Risk-Taking Channel of Monetary Policy

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.


Adrian, T and H Shin (2018), ‘DP12677 Risk-Taking Channel of Monetary Policy‘, CEPR Discussion Paper No. 12677. CEPR Press, Paris & London. https://cepr.org/publications/dp12677