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State-dependent risk taking and the transmission of monetary policy shocks

Author

Listed:
  • Fève, Patrick
  • Garcia, Pablo
  • Sahuc, Jean-Guillaume

Abstract

Is risk taking an important channel by which monetary policy shocks affect economic activity? On the basis of a nonlinear structural VAR including a new measure of risk sensitivity by economic agents, we show that the role of the risk-taking channel depends on the state of the economy. While it is irrelevant during recession or normal times, it acts as an amplifier by boosting output during expansion. It means that, as long as monetary policy does not actively ”lean against the wind”, it may exacerbate boom-bust patterns.

Suggested Citation

  • Fève, Patrick & Garcia, Pablo & Sahuc, Jean-Guillaume, 2018. "State-dependent risk taking and the transmission of monetary policy shocks," Economics Letters, Elsevier, vol. 164(C), pages 10-14.
  • Handle: RePEc:eee:ecolet:v:164:y:2018:i:c:p:10-14
    DOI: 10.1016/j.econlet.2017.12.024
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    More about this item

    Keywords

    Risk-taking channel; Monetary policy; Boom-bust cycle;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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