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

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  • Alin-Marius ANDRIEŞ

    (Research Center in Finance, Alexandru Ioan Cuza University of Iasi,)

  • Ioana PLEŞCĂU

    (Research Center in Finance, Alexandru Ioan Cuza University of Iasi,)

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 exerts 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.

Suggested Citation

  • Alin-Marius ANDRIEŞ & Ioana PLEŞCĂU, 2020. "The Risk-Taking Channel of Monetary Policy: Do Macroprudential Regulation and Central Bank Independence Influence the Transmission of Interest Rates?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-30, September.
    • Handle: RePEc:rjr:romjef:v::y:2020:i:3:p:5-30
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    2. Hero Wonida & Sekar Utami Setiastuti, 2023. "The Effect of Monetary Policy & Macroprudential Policy and Their Interaction on Bank Risk-Taking in Indonesia," Gadjah Mada Economics Working Paper Series 202308007, Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada.

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    More about this item

    Keywords

    monetary policy; macroprudential regulation; financial crisis; bank risk; central bank independence;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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