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Monetary policy, economic uncertainty and bank risk: Cross-country evidence

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  • Wu, Ji
  • Yan, Yuanyun
  • Chen, Minghua
  • Jeon, Bang Nam

Abstract

This paper investigates how economic uncertainty affects the monetary policy–bank risk nexus. Using panel data on approximately 1100 public banks in 43 economies during the period of 2000–2018, we find consistent evidence that the “risk-taking channel” of monetary policy is weakened amid higher economic uncertainty. This finding is in line with the “option value of waiting” hypothesis, which suggests that economic uncertainty may induce banks to withhold their adjustments of risk-taking strategies when monetary policy is altered.

Suggested Citation

  • Wu, Ji & Yan, Yuanyun & Chen, Minghua & Jeon, Bang Nam, 2022. "Monetary policy, economic uncertainty and bank risk: Cross-country evidence," Journal of International Money and Finance, Elsevier, vol. 122(C).
    • Handle: RePEc:eee:jimfin:v:122:y:2022:i:c:s026156062100231x
    DOI: 10.1016/j.jimonfin.2021.102580
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    More about this item

    Keywords

    Monetary policy; Economic uncertainty; Bank risk;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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