Capital Flows and the Risk-Taking Channel of Monetary Policy

By Valentina Bruno, Hyun Song Shin. 2015

1,169 citations recorded by the source corpus.

We study the dynamics linking monetary policy with bank leverage and show that adjustments in leverage act as the linchpin in the monetary transmission mechanism that works through fluctuations in risk-taking. Motivated by the evidence, we formulate a model of the "risk-taking channel" of monetary policy in the international context that rests on the feedback loop between increased leverage of global banks and capital flows amid currency appreciation for capital recipient economies.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/febd51ac1f512412abb67479d487a3d803db7a2f

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Citations in the corpus

The international transmission of monetary policy (2018, background): “The changes in riskiness of bank positions depend on their leverage (Bruno and Shin 2015; Shin 2016).”
Breaking Free of the Triple Coincidence in International Finance (2016, background): “In this way, currency appreciation leads to greater risk-taking by banks, as shown in Bruno and Shin 15 See CGFS (2011) for a comprehensive discussion on the measurement, drivers and policy implications of global liquidity.”
The effectiveness of unconventional monetary policy at the zero lower bound : a cross-country analysis (2014, background): “…(Wha-ley 2000) reﬂecting its capacity as an indicator for ﬁnancial market risk aversion, should also capture uncertainty shocks that have probably been an important driver of macroﬁnancial dynamics during the crisis (see, e.g., Bloom 2009, Bacchetta and van Wincoop 2010, Bruno and Shin 2012).”
Unconventional monetary policies: a re-appraisal (2018, background): “The corresponding nominal “inertia” and “rigidities” are, in fact, a reflection of the deep 28 WP570 Unconventional monetary policies: a re-appraisal (eg Borio (2014b), Rey (2013), Bruno and Shin (2012)).”
Global financial conditions, country spreads and macroeconomic fluctuations in emerging countries (2013, neutral): “Canova (2005) showed that U.”
U.S. Unconventional Monetary Policy and Transmission to Emerging Market Economies (2014, background): “Bruno and Shin (2013) explore the impact of monetary policy on capital flows and risk taking by global banks using an extended VAR where they include a proxy for the leverage of global banks and the real effective exchange rate.”
Feeling the Heat: Climate Risks and the Cost of Sovereign Borrowing (2021, background): “Usually, slower moving variables are better candidates to be ordered before fast-moving variables (Bruno and Shin 2015).”
What are the Macroeconomic Effects of Asset Purchases (2016, background): “This suggests that managing expectations through reducing uncertainty (Bloom, 2009) may be relevant for both countries, and the risk-taking channel (Bruno and Shin, 2015) for the transmission mechanism in the UK.”
The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach‐for‐Yield, and Real Effects (2017, neutral): “…Laeven and Suarez (2017)).9 We show that this channel is also present at the international level (Rey (2013), Miranda-Agrippino and Rey (2015), Bruno and Shin (2015a, 2015b)), in particular, that low monetary policy rates and QE in high-income countries lead global banks to increase the…”
Critical macro-finance: A theoretical lens (2020, neutral): “What are the implications of this for the risk-taking channel of monetary policy (Bruno and Shin, 2015)?”