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Monetary policy through the risk-taking channel: Evidence from an emerging market

Author

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  • Passos, Felipe Vieira
  • Carrasco-Gutierrez, Carlos Enrique
  • Loureiro, Paulo Roberto Amorim

Abstract

This paper examines the influence of domestic and international monetary policies on the risk-taking behavior of Brazilian banks from 2003 to 2021. Using a dynamic panel model and macroeconomic data, we find a negative correlation between interest rates and banks' risk-taking. Lower interest rates heighten risk activities, evidenced by expanded credit, interbank deposits, risk exposure, provisions, and leverage. The relationship is stronger with international rates, highlighting global monetary policy's significant role. Our analysis also distinguishes the impacts of the subprime and Covid-19 crises, showing how these events, along with bank-specific characteristics and macroeconomic conditions, affect risk-taking. This study provides nuanced insights into the interplay between monetary policy, financial crises, and bank-specific factors in an emerging market context.

Suggested Citation

  • Passos, Felipe Vieira & Carrasco-Gutierrez, Carlos Enrique & Loureiro, Paulo Roberto Amorim, 2024. "Monetary policy through the risk-taking channel: Evidence from an emerging market," The Quarterly Review of Economics and Finance, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:quaeco:v:98:y:2024:i:c:s1062976924001297
    DOI: 10.1016/j.qref.2024.101923
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    More about this item

    Keywords

    Monetary policy; Risk-taking channel; Interest rate; Panel data;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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