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Capital Flows and the Risk-Taking Channel of Monetary Policy

  • Valentina Bruno
  • Hyun Song Shin

We study the dynamics linking monetary policy with bank leverage and show that adjustments in leverage act as the linchpin in the monetary transmission mechanism that works through fluctuations in risk-taking. Motivated by the evidence, we formulate a model of the "risk-taking channel" of monetary policy in the international context that rests on the feedback loop between increased leverage of global banks and capital flows amid currency appreciation for capital recipient economies.

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File URL: http://www.nber.org/papers/w18942.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18942.

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Date of creation: Apr 2013
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Publication status: published as 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:nbr:nberwo:18942
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