Monetary policy, excessive risk-taking and banking crisis

Zaghdoudi, Taha (2015): Monetary policy, excessive risk-taking and banking crisis.

Abstract

This paper examines the relationship between monetary policy and banks excessive risk-taking and banking crisis. We use a panel of data consisting of 22 Latin American countries, the OECD and South-East Asia, which experienced banking crises between 1990 and 2013. Our empirical results show that the adoption of an expansionary monetary policy via an increase in the money supply and the application of low interest rates over an extended period of time may induce an increase in banks risk-taking. However, a restrictive monetary policy with high interest rates increases the risk of banking crisis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary policy, bank risk, panel co-integration test
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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