Monetary Policy and Systemic Risk

Abstract In this paper, we shed some light on the mutual interplay of economic policy and the financial stability objective. We contribute to the intense discussion regarding the influence of fiscal and monetary policy measures on the real economy and the financial sector. We apply a factor-augmented vector autoregression model to Czech macroeconomic data and model the policy interactions in a data-rich environment. Our findings can be summarized in three main points: First, loose economic policies (especially monetary policy) may translate into a more stable financial sector, albeit only in the short term. In the medium term, an expansion-focused mix of monetary and fiscal policy may contribute to systemic risk accumulation, by substantially increasing credit dynamics and house prices. Second, we find that fiscal and monetary policy impact the financial sector in differential magnitudes and time horizons. And third, we confirm that systemic risk materialization might cause significant output losses and deterioration of public finances, trigger deflationary pressures, and increase the debt service ratio. Overall, our findings provide some empirical support for countercyclical fiscal and monetary policies.

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Shadow banking, monetary policy and systemic risk

Applied Economics ◽

10.1080/00036846.2020.1841088 ◽

2020 ◽

pp. 1-22

Author(s):

Xiao-Li Gong ◽

Xiong Xiong ◽

Wei Zhang

Keyword(s):

Monetary Policy ◽

Systemic Risk ◽

Shadow Banking

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Monetary Policy and Cyclical Systemic Risk - Friends or Foes?

Prague Economic Papers ◽

10.18267/j.pep.667 ◽

2018 ◽

Vol 27 (5) ◽

pp. 522-540 ◽

Cited By ~ 2

Author(s):

Łukasz Kurowski ◽

Paweł Smaga

Keyword(s):

Monetary Policy ◽

Systemic Risk

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Review of the Bank of Russia – NES Workshop ‘Main Challenges in Banking: Risks, Liquidity, Pricing, and Digital Currencies’

Russian Journal of Money and Finance ◽

10.31477/rjmf.202104.124 ◽

2021 ◽

Vol 80 (4) ◽

pp. 124-136

Author(s):

Ivan Khotulev ◽

Keyword(s):

Monetary Policy ◽

Central Bank ◽

Systemic Risk ◽

Credit Spreads ◽

Information Flows ◽

Real Economy ◽

The Real ◽

Market Participants ◽

Central Bankers ◽

Liquidity Pricing

In October 2021, the Bank of Russia and the New Economic School (NES) hosted a joint international online workshop titled ‘Main Challenges in Banking: Risks, Liquidity, Pricing, and Digital Currencies’. Five papers were presented. They addressed various issues in banking which are currently of paramount importance to central bankers, market participants, and academics: the connections between systemic risk and the real economy, the digitalisation of finance and information asymmetries, credit spreads and monetary policy, the improvement of information flows and outcomes in credit markets, the introduction of central bank digital currencies, and bank intermediation.

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Monetary policy and systemic risk-taking in the euro area banking sector

Economic Modelling ◽

10.1016/j.econmod.2019.10.020 ◽

2020 ◽

Vol 91 ◽

pp. 736-758 ◽

Cited By ~ 1

Author(s):

Alain Kabundi ◽

Francisco Nadal De Simone

Keyword(s):

Monetary Policy ◽

Euro Area ◽

Risk Taking ◽

Systemic Risk ◽

Banking Sector

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Monetary Policy, Industry Heterogeneity and Systemic Risk—Based on a High Dimensional Network Analysis

Sustainability ◽

10.3390/su11226222 ◽

2019 ◽

Vol 11 (22) ◽

pp. 6222

Author(s):

Su ◽

Huang ◽

Drakeford

Keyword(s):

Monetary Policy ◽

Systemic Risk ◽

High Dimensional ◽

Risk Sensitivity ◽

Return On Assets ◽

Leverage Ratio ◽

Energy Material ◽

Dimensional Network ◽

Risk Contribution ◽

Book To Market Ratio

We utilized a high dimensional financial network to investigate the systemic risk contagion between different industries in China and to explore the impacts of monetary policy and industry heterogeneity factors. The empirical results suggest that the total level of systemic risk increased quite significantly during the 2008 global crisis and the 2015–2016 Stock Market Disaster. The energy, material, industrial, and financial sectors are the top systemic risk contributors. Industry heterogeneity variables such as the leverage ratio, book-to-market ratio, return on assets (ROA) and size have significant impacts on the systemic risk, but their effects on the systemic risk contribution are more pronounced than those on the systemic risk sensitivity. Moreover, monetary policy can effectively suppress the systemic risk diffusion derived from the leverage ratio. These results are essential for investors and regulators of risk management.

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