Monetary Policy and Excessive Bank Risk Taking (Agur I., Demertzis M.)

Risk-taking and Risk Management Stability&Soundness

Abstract If monetary policy is to aim at financial stability, how would it change? To analyze this question, this paper develops a general-form, axiomatic framework. Financial stability objectives are shown to make a monetary authority more conservative and more aggressive. Conservative as it sets higher rates on average. And aggressive because, in reaction to negative shocks, cuts are deeper but shorter-lived than otherwise. Keeping cuts short is crucial as bank risk responds primarily to stable low rates. Within the short span, cuts then must be deep to achieve standard objectives.
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Libref/ Agur I., Demertzis M. (2010) “Monetary Policy and Excessive Bank Risk Taking”, European Banking Center Discussion Paper No. 2010–06S, pp. 1-27
© Программирование — Александр Красильников, 2008
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