Risk Appetite and the Risk-Taking Channel of Monetary Policy

Dados Bibliográficos

ID5035440
AutoresMichael D Bauer (0000-0002-2711-816X, Michael Bauer is Professor of Economics, Universität Hamburg, Hamburg, Germany.), Ben S Bernanke (Ben Bernanke is Distinguished Senior Fellow, Brookings Institution, Washington, DC.), Ben Bernanke (Brookings Institution), Eric Milstein (Eric Milstein is a PhD student, University of Chicago, Chicago, Illinois.)
Ano2023
Volume37
Fascículo1
Páginas77-100
Data de publicação2023-02-01
Peer ReviewedSim
Open AccessSim
TipoARTICLE
PeriódicoThe Journal of Economic Perspectives (JOURNAL)
Identificadores do periódicoISSN: 0895-3309 • E-ISSN: 1944-7965
EditoraAmerican Economic Association (PUBLISHER • US)
DOI10.1257/jep.37.1.77
OpenAlexW4319296147
IdiomaEN
Citações recebidas4
Referências citadas5

Monetary policy affects financial markets and the broader economy in part by changing the risk appetite of investors. This article provides new evidence for this so-called risk-taking channel of monetary policy by revisiting and extending event-study analysis of Federal Open Market Committee announcements. We document significant effects of unexpected monetary policy changes on risk indicators drawn from equity, fixed-income, credit, and foreign exchange markets. We develop a new index of risk appetite based on the common component of these indicators. Surprise monetary easing leads to strong and persistent increases in our index, and vice versa for tightening surprises, consistent with the view that monetary policy affects asset prices in large part through its effects on risk appetite. We discuss the implications of the risk-taking channel for monetary policy transmission, optimal monetary policy, and financial stability

Credit channel · Economics · Inflation targeting · Monetary economics · Monetary policy · Open market operation · Risk appetite · Risk management · Financial Markets and Investment Strategies · Market Dynamics and Volatility · Monetary Policy and Economic Impact · Finance