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dc.contributor.authorCao, Jinen_US
dc.contributor.authorIlling, Gerharden_US
dc.description.abstractThis paper provides a framework for modeling the risk-taking channel of monetary policy, the mechanism how financial intermediaries’ incentives for liquidity transformation are affected by the central bank’s reaction to financial crisis. Anticipating central bank’s reaction to liquidity stress gives banks incentives to invest in excessive liquidity transformation, triggering an 'interest rate trap' - the economy will remain stuck in a long lasting period of sub-optimal, low interest rate equilibrium. We demonstrate that interest rate policy as financial stabilizer is dynamically inconsistent, and the constraint efficient outcome can be implemented by imposing ex ante liquidity requirements.en_US
dc.publisherCenter for Economic Studies and Ifo Institute (CESifo) Munichen_US
dc.relation.ispartofseriesCESifo working paper: Monetary Policy and International Finance 3794en_US
dc.subject.keywordinterest rate trapen_US
dc.subject.keywordrisk-taking channelen_US
dc.subject.keywordsystemic risken_US
dc.subject.keywordliquidity requirementsen_US
dc.subject.keywordmacroprudential regulationen_US
dc.title"Interest Rate Trap", or: Why does the central bank keep the policy rate too low for too long time?en_US
dc.typeWorking Paperen_US
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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