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Capital flows and the risk-taking channel of monetary policy |
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| Institution: | 1. MIT-Sloan School of Management, United States;2. NBER, United States;3. DIW Berlin, Germany;4. Humboldt University Berlin, Germany;5. CEPR, United Kingdom;6. European Central Bank, Germany;1. Bank for International Settlements, Centralbahnplatz 2, CH-4051 Basel, Switzerland;2. Vancouver School of Economics, 997–1873 East Mall, Vancouver, BC Canada V6T 1Z1 |
| Abstract: | Adjustments in bank leverage act as the linchpin in the monetary transmission mechanism that works through fluctuations in risk-taking. In the international context, we find evidence of monetary policy spillovers on cross-border bank capital flows and the US dollar exchange rate through the banking sector. A contractionary shock to US monetary policy leads to a decrease in cross-border banking capital flows and a decline in the leverage of international banks. Such a decrease in bank capital flows is associated with an appreciation of the US dollar. |
| Keywords: | Bank leverage Monetary policy Capital flows Risk-taking channel |
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