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Angeloni, Ignazio
Faia, Ester
Lo Duca, Marco
Year of Publication: 
Series/Report no.: 
Bruegel Working Paper No. 2010/00
We assess, through VAR evidence, the effects of monetary policy on banks' risk exposure and find the presence of a risk-taking channel. A model combining fragile banks prone to risk mis-incentives and credit constrained firms, whose collateral fluctuations generate a balance sheet channel, is used to rationalize the evidence. A monetary expansion increases bank leverage. With two consequences: on the one side this exacerbates risk exposure; on the other, the risk spiral depresses output, therefore dampening the conventional amplification effect of the financial accelerator.
monetary policy
bank behavior
financial accelerator
Document Type: 
Working Paper
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