مقررات سرمایه، ریسک پذیری و سیاست های پولی: آیا حلقه گم شده در مکانیسم انتقال است ؟

Few areas of monetary economics have been studied as extensively as the transmission mechanism. The literature on this topic has evolved substantially over the years, following the waxing and waning of conceptual frameworks and the changing characteristics of the financial system. In this paper, taking as a starting point a brief overview of the extant work on the interaction between capital regulation, the business cycle and the transmission mechanism, we offer some broader reflections on the characteristics of the transmission mechanism in light of the evolution of the financial system. We argue that insufficient attention has so far been paid to the link between monetary policy and the perception and pricing of risk by economic agents—what might be termed the “risk-taking channel” of monetary policy. We develop the concept, compare it with current views of the transmission mechanism, explore its mutually reinforcing link with “liquidity” and analyse its interaction with monetary policy reaction functions. We argue that changes in the financial system and prudential regulation may have increased the importance of the risk-taking channel and that prevailing macroeconomic paradigms and associated models are not well suited to capturing it, thereby also reducing their effectiveness as guides to monetary policy.

Few areas of monetary economics have been studied as extensively as the transmission mechanism.2 The literature on this topic has evolved substantially over the years, following the waxing and waning of conceptual frameworks and the changing characteristics of the financial system. The evolution driven by conceptual frameworks is of older vintage; at the cost of some oversimplification, it can roughly be characterised as follows. In the now seemingly distant days of the battles between monetarists and Keynesians, there was a consensus that a key channel through which monetary impulses affected aggregate expenditure was through their impact on the relative yields of imperfectly substitutable assets. The main bone of contention at the time had to do with the degree of relative substitutability between money and other assets and, relatedly, with how large the set of those assets should be to adequately capture the effects. Monetarists highlighted a low elasticity and often envisaged a much broader set than Keynesians, including real assets and possibly human wealth.3 In fact, in the simplest IS-LM framework, which monetarists often found so constraining, the only relevant distinction was between “money”, an asset whose nominal yield was exogenously fixed (normally at zero), and “bonds”. This way of approaching the issue was a natural consequence of conceptual frameworks that emphasised stock equilibrium. Subsequently, the main emphasis shifted to the distinction between internal and external funding. The bone of contention here has been whether informational imperfections (frictions) in financial markets are such as to drive a quantitatively significant wedge between the two sources of funding, or indeed between different forms of external funding. In other words, how significant are the “broad credit” (or “balance sheet”) and “bank lending” channels compared with the interest rate channel, defined to include any inter-temporal substitution and wealth (permanent income) effects on expenditures?4 This literature has drawn strength from major advances in the formal theory of contracts in the presence of asymmetric information. In spirit, the approach is intellectually closer to the loanable funds theory of the interest rate, in so far as it focuses more on flows than stocks. The changing characteristics of the financial system have recently encouraged a shift of focus in the analysis from the role of monetary controls to that of prudential controls in the transmission mechanism, especially to that of capital regulation. A few decades back, a variety of restrictions were in place in several countries on intermediaries’ balance sheets as part of credit allocation and overall credit control policies. Over time, as these restrictions were lifted, the only constraint receiving attention became minimum reserve requirements. This was viewed as an integral part of the bank lending channel, with shifts in the non-bank public's portfolios between capital market instruments (bonds) and reservable deposits seen as impinging on the supply of bank lending. More recently, with the increasing influence of minimum capital requirements on bank behaviour, a growing literature has started to consider the corresponding implications for the transmission mechanism based on the differential cost of equity funding (the “bank capital” channel). In this paper, taking as a starting point a brief overview of the work on the interaction between capital regulation, the business cycle and the transmission mechanism, we offer some broader reflections on the characteristics of the transmission mechanism in light of the evolution of the financial system. The analysis is very much of a speculative, exploratory nature. We do not develop any new specific model or present new econometric evidence, but simply highlight what appear to us as under-researched aspects of the issues.

Over the last three decades the financial landscape has gone through radical structural change. As a result of financial liberalisation and innovation, heavily controlled, segmented and “sleepy” domestic financial systems have given way to a lightly regulated, open and vibrant global financial system. The main regulatory constraints that remain are of a prudential nature. The world that has emerged from this transformation is one where finance naturally plays a bigger role in macroeconomic dynamics. Financing constraints have structurally been eased but have by no means disappeared. The measurement, management and pricing of risk have moved from the periphery to the core of financial activity. The link between valuations and risk perceptions has tightened. The mutually reinforcing feedback between perceptions of value and risk, on the one hand, and financing constraints and “liquidity”, on the other, has arguably become more prominent. Under some circumstances, it may therefore also contribute to amplifying business fluctuations more than in the past. There are reasons to believe that this transformation may also have had an impact on the transmission mechanism of monetary policy. In this essay, we have argued that its impact could be multifaceted. To the extent that a further-reaching and more risk-sensitive prudential framework increases its influence on the workings of the financial system and the macro-economy; it may also become more important in shaping the impact of monetary policy impulses. To the extent that risk perceptions and risk tolerance become more pervasive influences on behaviour, the direct and indirect impact of monetary policy on expenditures through its nexus with risk-taking may well grow. To the extent that procyclical forces in the economy increase, unless the monetary policy regime allows for the possibility of responding to the build-up of risk even if near-term inflation remains subdued, the likelihood of occasional but costly boom–bust business fluctuations may be higher than in the past. One could see the risk-taking channel as a natural evolution, in some ways a synthesis, of older and newer views of the transmission mechanism. The relative-yield channels on which monetarists and Keynesians had focused did, at bottom, rely on the influence of monetary policy on risk (including liquidity) premia. That literature, however, did not pay much attention to financing constraints. The broad credit (balance-sheet) and bank lending channels, grounded on the economics of imperfect information, subsequently highlighted financing constraints, but tended to relegate risk perceptions and pricing to a rather secondary role. The risk-taking channel highlights the role of the measurement, management and pricing of risk, alongside its nexus with financing constraints and liquidity. To be sure, we are by no means arguing that this is the main channel; this would obviously be wrong. Rather, we are arguing that it is a channel that deserves closer exploration, especially since it may be becoming more prominent. The exploration of the risk-taking channel, in both its micro and macro aspects, calls for a blending of different intellectual strands. It draws from finance its close attention to the measurement and the pricing of risk. It draws on the foundations of monetary economics to differentiate between nominal and real phenomena. It draws on the economics of imperfect information to better understand the nature of contracts and financing constraints as well as potential coordination failures. It could usefully draw on behavioural economics to understand more fully limitations in risk perceptions and incentives. And it draws on macroeconomics to embed these factors into a general equilibrium framework—the only one in which the dynamic, tight and highly non-linear link between the financial system and the broader economy can be properly assessed. Incorporating financial distress in a meaningful way in our macroeconomic tools should be a high priority. All this is a tall order. But even if a holistic approach is bound to remain beyond reach, it should not prevent us from trying to chip away at the questions, through more targeted analytical and empirical exercises. The stakes are not inconsequential. Central bankers are increasingly confronted with the need to better understand and respond to economic fluctuations in which protracted surges in risk-taking and withdrawals from it are more and more apparent, and in which long periods of seeming financial stability give way to the sudden, potentially highly disruptive, emergence of financial strains. The turbulence in the financial system that erupted in 2007–2008 is just the latest reminder of this evolution. Exploring how monetary policy interacts with risk-taking is a necessary step to provide policymakers with a sounder analytical basis for their responses.