Reaching for Yield and the Diabolic Loop in a Monetary Union
| Autor: | Duc Khuong Nguyen, Sabri Boubaker, Nikos Paltalidis, Dimitrios Gounopoulos |
|---|---|
| Přispěvatelé: | University of Bath [Bath], Institut de Planétologie et d'Astrophysique de Grenoble (IPAG), Institut national des sciences de l'Univers (INSU - CNRS)-Centre National d'Études Spatiales [Toulouse] (CNES)-Centre National de la Recherche Scientifique (CNRS)-Observatoire des Sciences de l'Univers de Grenoble (OSUG ), Institut polytechnique de Grenoble - Grenoble Institute of Technology (Grenoble INP )-Institut national des sciences de l'Univers (INSU - CNRS)-Institut national de recherche en sciences et technologies pour l'environnement et l'agriculture (IRSTEA)-Université Savoie Mont Blanc (USMB [Université de Savoie] [Université de Chambéry])-Centre National de la Recherche Scientifique (CNRS)-Université Grenoble Alpes [2016-2019] (UGA [2016-2019])-Institut polytechnique de Grenoble - Grenoble Institute of Technology (Grenoble INP )-Institut national de recherche en sciences et technologies pour l'environnement et l'agriculture (IRSTEA)-Université Savoie Mont Blanc (USMB [Université de Savoie] [Université de Chambéry])-Centre National de la Recherche Scientifique (CNRS)-Université Grenoble Alpes [2016-2019] (UGA [2016-2019]), Durham University |
| Rok vydání: | 2019 |
| Předmět: |
Economics and Econometrics
Flow of funds Yield (finance) Financial intermediary Financial fragility Monetary economics [SHS]Humanities and Social Sciences Diabolic loop 0502 economics and business Economics 050207 economics Empirical evidence Financial intermediation 050208 finance 05 social sciences Monetary policy 1. No poverty Market liquidity Incentive Sovereign debt 8. Economic growth Portfolio Finance |
| Zdroj: | Boubaker, S, Gounopoulos, D, Nguyen, D & Paltalidis, N 2020, ' Reaching for Yield and the Diabolic Loop in a Monetary Union ', Journal of International Money and Finance, vol. 108, 102157 . https://doi.org/10.1016/j.jimonfin.2020.102157 Journal of international money and finance., 2020, Vol.108, pp.102157 [Peer Reviewed Journal] Journal of International Money and Finance Journal of International Money and Finance, Elsevier, 2020, 108, pp.102157-. ⟨10.1016/j.jimonfin.2020.102157⟩ |
| ISSN: | 1556-5068 0261-5606 |
| DOI: | 10.2139/ssrn.3323127 |
| Popis: | We use the theoretical framework of Acharya and Naqvi (2019) to introduce a macro-financial model where the “reaching for yield” incentivized by a loosening monetary policy in the United States mitigates the diabolic loop in a Monetary Union. We provide empirical evidence that the introduction of an accommodative monetary policy by the Fed lowers the yields in US assets and increases liquidity and, by extension, the threshold above which a liquidity shock can damage a bank. This, in turn, incentivizes bank managers to optimize their portfolios by investing in risky assets. We use a monetary VAR to provide novel empirical evidence that there is an increase in the flow of funds to European assets, a result which can be attributed to the “reaching-for-yield” incentive. This portfolio balance channel attenuates the effects of financial fragility and improves government funding costs as well as credit conditions by providing liquidity to domestic banks and assets. As a result, the “reaching-for-yield” incentive mitigates the diabolic loop effect. |
| Databáze: | OpenAIRE |
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