Capital Flows and the Risk-Taking Channel of Monetary Policy
AbstractThis paper examines the relationship between low interests maintained by advanced economy central banks and credit booms in emerging economies. In a model with crossborder banking, low funding rates increase credit supply, but the initial shock is amplified through the "risk-taking channel" of monetary policy where greater risk-taking interacts with dampened measured risks that are driven by currency appreciation to create a feedback loop. In an empirical investigation using VAR analysis, we find that expectations of lower short-term rates dampen measured risks and stimulate cross-border banking sector capital flows.
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Bibliographic InfoPaper provided by Bank for International Settlements in its series BIS Working Papers with number 400.
Length: 57 pages
Date of creation: Dec 2012
Date of revision:
Capital flows; exchange rate appreciation; credit booms;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-07 (All new papers)
- NEP-CBA-2013-01-07 (Central Banking)
- NEP-IFN-2013-01-07 (International Finance)
- NEP-MON-2013-01-07 (Monetary Economics)
- NEP-OPM-2013-01-07 (Open Economy Macroeconomic)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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