Document Type
Peer-Reviewed Article
Publication Date
9-2020
Abstract
Available empirical evidence on the significance of the (micro) risk-taking channel of monetary policy is not enough to indicate a threat to financial stability. Evidence of risk-taking with systemic risk implications is necessary. Statistical measures that capture systemic risk in all its forms within a structural factor-augmented vector autoregressive model suggest that conventional and unconventional monetary policies have resulted in systemic risk-taking in the euro area banking sector. Systemic risk has taken the form of an increase in the banking sector’s vulnerability via contagion and interconnectedness. Banks’ balance sheets, however, do not account for the full transmission from (micro) risk taking to systemic risk-taking. The main policy implication is that a persistently accommodative monetary policy may drive a monetary authority with a price stability mandate to consider a possible trade-off with financial stability. At a minimum, coordination between monetary and macro-prudential policies requires serious consideration.
DOI
10.1016/j.econmod.2019.10.020
Recommended Citation
Kabundi, Alain and Nadal-De Simone, Francisco, "Monetary Policy and Systemic Risk-Taking in the Euro Area Banking Sector" (2020). WCBT Faculty Publications. 532.
https://digitalcommons.sacredheart.edu/wcob_fac/532
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Comments
Version posted is the Accepted Manuscript. Published in its final version as:
Kabundi, A., & Nadal-De-Simone, F. (2020). Monetary policy and systemic risk-taking in the euro area banking sector. Economic Modelling, 91, 736-758. Doi: 10.1016/j.econmod.2019.10.020
JEL Classification: E44, E52, C30, C38, G1