Central Bank Policy and the Concentration of Risk: Empirical Estimates
Journal
Journal of Monetary Economics
Subject
Economics
Publishing details
Authors / Editors
Coimbra N;Kim D;Rey H
Biographies
Publication Year
2022
Abstract
Before the 2008 crisis, the cross-sectional skewness of banks’ leverage went up and macro risk concentrated in the balance sheets of large banks. Using a model of profit-maximizing banks with heterogeneous Value-at-Risk constraints, we extract the distribution of banks’ risk-taking parameters from balance sheet data. The time series of these estimates allow us to understand systemic risk and its concentration in the banking sector over time. Counterfactual exercises show that (1) monetary policymakers confront the trade-off between stimulating the economy and financial stability, and (2) macroprudential policies can be effective tools to increase financial stability.
Keywords
Bank regulation; Financial cycle; Leverage; Monetary policy; Risk-taking; Systemic risk
Available on ECCH
No
