We reconsider the role of financial intermediaries in monetary economics. We explore the hypothesis that financial intermediaries drive the business cycle by way of their role in determining the price of risk. In this framework, balance sheet quantities emerge as a key indicator of risk appetite...

This work assesses the impact of monetary policy shocks on the extension of bank credit by local banks and foreign banks in general. We however employ the impulse response functions and the variance decomposition analysis as part of our study in assessing the responses of these types of...

Traditionally, aggregate liquidity shocks are modelled as exogenous events. Extending our previous work (Cao & Illing, 2008), this paper analyses the adequate policy response to endogenous systemic liquidity risk. We analyse the feedback between lender of last resort policy and incentives of...

We study the design of lender of last resort interventions and show that the provision of long-term liquidity incentivizes purchases of high-yield short-term securities by banks. Using a unique security-level data set, we find that the European Central Bank's three-year Long-Term Refinancing...

Shadow banking, as one of the main sources of financial stability concerns, is the subject of much international debate. In broad terms, shadow banking refers to activities related to credit intermediation and liquidity and maturity transformation that take place outside the regulated banking...

This paper shows that a rate hike has countervailing effects on banks' risk appetite. It reduces risk when the debt burden of the banking sector is modest. We model a regulator whose trade-off between bank risk and credit supply is derived from a welfare function. We show that the regulator...

Shadow banking, as one of the main sources of financial stability concerns, is the subject of much international debate. In broad terms, shadow banking refers to activities related to credit intermediation and liquidity and maturity transformation that take place outside the regulated banking...

Monetary policy is undeniably an effective tool in global financial systems; that notwithstanding it sometimes comes with unanticipated consequences. For there to be a successful monetary policy arrangement in place, there is the need for policymakers and or regulators to have a precise...

Against the backdrop of invariant financial and economic reforms, there are presumptive changes in the confines and speed with which target variables respond to Reserve Bank of India (RBI) policy signals. The result of transmission lags from monetary policy to the real sector is unmistakable....