An analysis of the relationship between monetary policy, business cycles and financial stability
<p>The thesis sheds light on key policy issues emerging from the recent Global Financial Crisis. The first chapter studies whether expansionary monetary policy contributes to bank risk-taking, in the case of Asia. I rely on panel data analysis covering 432 banks in 9 Asian countries over the y...
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| Format: | Thesis |
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2017
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| _version_ | 1797097216691666944 |
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| author | Nookhwun, N |
| author2 | Tsomocos, D |
| author_facet | Tsomocos, D Nookhwun, N |
| author_sort | Nookhwun, N |
| collection | OXFORD |
| description | <p>The thesis sheds light on key policy issues emerging from the recent Global Financial Crisis. The first chapter studies whether expansionary monetary policy contributes to bank risk-taking, in the case of Asia. I rely on panel data analysis covering 432 banks in 9 Asian countries over the year 2000-2011. The ratio of risky assets to total assets serves as a risk-taking indicator. The results support the existence of the bank risk-taking channel, which is more pronounced for banks listed on the stock market. I also report new findings with respect to how banks take more risk following monetary expansion. Importantly, evidence of excessive leverage is not found. The second chapter constructs a model for analyzing bank risk-taking. I embed firm heterogeneity, endogenous default risk and capital adequacy regulation into both RBC and NK DSGE models. A subset of the firms can partially default on their loans obligation but subject to non-pecuniary default penalty. With those financial frictions in place, I find that standard macroeconomic shocks can induce banks to engage in higher risk-taking. The chapter then explores the effectiveness of several macro-prudential tools in mitigating risk-taking. I find countercyclical capital buffers and risky to total asset ratio targeting to be effective. The third chapter emphasises the spillover effects of shocks originating in the housing and financial market on the real economy. I embed endogenous mortgage default into a New Keynesian model that features housing and the banking sector. The latter faces capital regulation. We study two key shocks, namely shocks to the variance of idiosyncratic housing shock and shocks to the penalty on capital regulation. Both are instrumental in causing a surge in mortgage default and loans risk premium, which constrains bank lending activity. The chapter later introduces three macroprudential measures to explore whether they improve economic stability and welfare.</p> |
| first_indexed | 2024-03-07T04:52:24Z |
| format | Thesis |
| id | oxford-uuid:d56b4883-1eee-4d26-9b12-554414791969 |
| institution | University of Oxford |
| last_indexed | 2024-03-07T04:52:24Z |
| publishDate | 2017 |
| record_format | dspace |
| spelling | oxford-uuid:d56b4883-1eee-4d26-9b12-5544147919692022-03-27T08:25:46ZAn analysis of the relationship between monetary policy, business cycles and financial stabilityThesishttp://purl.org/coar/resource_type/c_db06uuid:d56b4883-1eee-4d26-9b12-554414791969ORA Deposit2017Nookhwun, NTsomocos, DBowdler, C<p>The thesis sheds light on key policy issues emerging from the recent Global Financial Crisis. The first chapter studies whether expansionary monetary policy contributes to bank risk-taking, in the case of Asia. I rely on panel data analysis covering 432 banks in 9 Asian countries over the year 2000-2011. The ratio of risky assets to total assets serves as a risk-taking indicator. The results support the existence of the bank risk-taking channel, which is more pronounced for banks listed on the stock market. I also report new findings with respect to how banks take more risk following monetary expansion. Importantly, evidence of excessive leverage is not found. The second chapter constructs a model for analyzing bank risk-taking. I embed firm heterogeneity, endogenous default risk and capital adequacy regulation into both RBC and NK DSGE models. A subset of the firms can partially default on their loans obligation but subject to non-pecuniary default penalty. With those financial frictions in place, I find that standard macroeconomic shocks can induce banks to engage in higher risk-taking. The chapter then explores the effectiveness of several macro-prudential tools in mitigating risk-taking. I find countercyclical capital buffers and risky to total asset ratio targeting to be effective. The third chapter emphasises the spillover effects of shocks originating in the housing and financial market on the real economy. I embed endogenous mortgage default into a New Keynesian model that features housing and the banking sector. The latter faces capital regulation. We study two key shocks, namely shocks to the variance of idiosyncratic housing shock and shocks to the penalty on capital regulation. Both are instrumental in causing a surge in mortgage default and loans risk premium, which constrains bank lending activity. The chapter later introduces three macroprudential measures to explore whether they improve economic stability and welfare.</p> |
| spellingShingle | Nookhwun, N An analysis of the relationship between monetary policy, business cycles and financial stability |
| title | An analysis of the relationship between monetary policy, business cycles and financial stability |
| title_full | An analysis of the relationship between monetary policy, business cycles and financial stability |
| title_fullStr | An analysis of the relationship between monetary policy, business cycles and financial stability |
| title_full_unstemmed | An analysis of the relationship between monetary policy, business cycles and financial stability |
| title_short | An analysis of the relationship between monetary policy, business cycles and financial stability |
| title_sort | analysis of the relationship between monetary policy business cycles and financial stability |
| work_keys_str_mv | AT nookhwunn ananalysisoftherelationshipbetweenmonetarypolicybusinesscyclesandfinancialstability AT nookhwunn analysisoftherelationshipbetweenmonetarypolicybusinesscyclesandfinancialstability |