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Capital flows and the risk-taking channel of monetary policy

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  • Bruno, Valentina
  • Shin, Hyun Song

Abstract

Adjustments in bank leverage act as the linchpin in the monetary transmission mechanism that works through fluctuations in risk-taking. In the international context, we find evidence of monetary policy spillovers on cross-border bank capital flows and the US dollar exchange rate through the banking sector. A contractionary shock to US monetary policy leads to a decrease in cross-border banking capital flows and a decline in the leverage of international banks. Such a decrease in bank capital flows is associated with an appreciation of the US dollar.

Suggested Citation

  • Bruno, Valentina & Shin, Hyun Song, 2015. "Capital flows and the risk-taking channel of monetary policy," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 119-132.
  • Handle: RePEc:eee:moneco:v:71:y:2015:i:c:p:119-132
    DOI: 10.1016/j.jmoneco.2014.11.011
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Bank leverage; Monetary policy; Capital flows; Risk-taking channel;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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