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

Fève, Patrick, Garcia, Pablo and Sahuc, Jean-Guillaume (2018) State-dependent risk taking and the transmission of monetary policy shocks. Economics Letters, 164. pp. 10-14.

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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.

Item Type: Article
Language: English
Date: March 2018
Refereed: Yes
Uncontrolled Keywords: Risk-taking channel, Monetary policy, Boom-bust cycle
JEL Classification: C32 - Time-Series Models
E52 - Monetary Policy (Targets, Instruments, and Effects)
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 18 May 2018 10:09
Last Modified: 24 Jul 2019 11:31
OAI Identifier:

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