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The Risk-Taking Channel in the US: A GVAR Approach

Author

Listed:
  • Raslan Alzubi

    (Department of Economics, University of Sheffield)

  • Mustafa Caglayan

    (School of Social Sciences, Heriot-Watt University)

  • Kostas Mouratidis

    (Department of Economics, University of Sheffield)

Abstract

Employing data from thirty large banks in the US, we examine banks' risk-taking behaviour in response to monetary policy shocks. Our investigation provides support for the presence of a risk-taking channel: banks' nonperforming loans increase in medium to long run following an expansionary monetary policy shock. We also find that banks' capital structure plays an important role in explaining bank's risk-taking appetite. Impulse response analysis shows that shocks emanating from larger banks spillover to the rest of the sector but no such effect is observed for smaller banks. The results are confirmed for banks' Z-score.

Suggested Citation

  • Raslan Alzubi & Mustafa Caglayan & Kostas Mouratidis, 2017. "The Risk-Taking Channel in the US: A GVAR Approach," Working Papers 2017009, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2017009
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    More about this item

    Keywords

    Risk-taking channel; GVAR; monetary policy shocks; spilloverover effects;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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