The Risk-Taking Channel of Monetary Policy: Do Macroprudential Regulation and Central Bank Independence Influence the Transmission of Interest Rates?

25 Pages Posted: 21 Aug 2017

See all articles by Alin Marius Andries

Alin Marius Andries

Alexandru Ioan Cuza University of Iasi; Romanian Academy - Institute for Economic Forecasting

Ioana Plescau

Alexandru Ioan Cuza University - Faculty of Economics and Business Administration

Date Written: August 01, 2017

Abstract

This study focuses on the risk-taking channel of monetary policy and its interaction with a supervisory-independence channel for commercial banks from Central and Eastern Europe, during the 2005-2011 period. Our results support the existence of an inverse relationship between expansionary monetary policy and bank risk-taking, meaning that very low interest rates lead to higher bank risk-taking. Also, our results show that the tight macroprudential regulation framework mitigates the negative impact of low rates. Furthermore, we show that central bank independence exert the same beneficial effect on the bank risk-taking channel because results show a dampening effect of central bank independence on the relation between expansionary monetary policy and bank risk-taking. Moreover, our results demonstrate that the risk-taking channel of monetary policy is even stronger in times of financial crisis.

Keywords: monetary policy, macroprudential regulation, financial crisis, bank risk, central bank independence

JEL Classification: E60, G01, G21, G28

Suggested Citation

Andries, Alin Marius and Plescau, Ioana, The Risk-Taking Channel of Monetary Policy: Do Macroprudential Regulation and Central Bank Independence Influence the Transmission of Interest Rates? (August 01, 2017). Available at SSRN: https://ssrn.com/abstract=3021249 or http://dx.doi.org/10.2139/ssrn.3021249

Alin Marius Andries (Contact Author)

Alexandru Ioan Cuza University of Iasi ( email )

Bvd. Carol nr. 22
Iasi, 700505
Romania

HOME PAGE: http://www.feaa.uaic.ro/faculty/marius-alin-andries/

Romanian Academy - Institute for Economic Forecasting ( email )

Calea 13 Septembrie nr. 13
Bucharest, 050711
Romania

Ioana Plescau

Alexandru Ioan Cuza University - Faculty of Economics and Business Administration ( email )

Bd. Carol I no.22
Iasi, RO-700505
Romania

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