Monetary policy and systemic risk on financial markets : concepts, transmission channels and policy implications

摘要

The present thesis explores the issue of systemic risk on financial markets and its interplay with monetary policy. Systemic risk is defined as the risk of experiencing a severe financial crisis. It is inefficiently high in the absence of appropriate regulation due to the presence of systemic externalities, which arise if financial institutions do not internalize the consequences of their actions for systemic stability. More specifically, such behavior may lead to vulnerable financial networks, poor diversification, fire sales, inefficient distribution of liquidity as well as to breakdowns of markets characterized by incomplete information. Macroprudential regulation aiming at systemic stability should therefore focus on the mitigation of systemic externalities. However, a critical assessment of the current state of financial regulation reveals that several important drivers of systemic risk remain unaddressed.Insufficient containment of systemic risk poses a challenge for monetary policy. First, financial crises have adverse effects on macroeconomic stability. Second, monetary policy itself has the potential to affect the evolution of systemic risk. It is subsequently tried to shed light on potential transmission channels running from an expansive policy stance to an increase in systemic risk. On a theoretical basis, it is found that a monetary expansion tends to induce higher leverage as well as credit risk and less stable refinancing in the intermediation sector. An empirical analysis of the US economy based on vector autoregressions supports this “risk-taking channel.” Moreover, the analysis of a simple macro-financial model shows that procyclical risk-taking behavior of financial intermediaries produces additional macroeconomic volatility. Optimal policy consists of a combination of strict capital requirements and an interest rate rule featuring an explicit reaction to credit dynamics.In a final step, I discuss implications for monetary policy. If macroprudential regulation is not strict enough, it is advisable to embark on a strategy of preemptive interest rate hikes in an environment of rising systemic risk. Its implementation could be achieved by a slight modification of the existing two-pillar strategy of the European Central Bank. Alternatively, central banks could rely on output gap measures which take financial conditions into account. However, such a strategy can increase short-term macroeconomic volatility. Hence, monetary policy faces the additional trade-off of balancing medium-term financial stability against macroeconomic stability in the short run. Moreover, monetary policy and macroprudential regulation should be carefully coordinated to deliver welfare-maximizing outcomes.