Research On The Effect Of Macroprudential Policy On The Risk-Taking Channel Of Monetary Policy

The outbreak of the sub-prime crisis reveals that commercial banks are not risk-neutral in the transmission mechanism of monetary policy.Monetary policy changes bank risk-taking by influencing their risk identification and tolerance,thus ultimately affects financial stability and output.After the crisis,the path from monetary policy to financial stability is formally defined as the risk-taking channel of monetary policy,which establishes the previously neglected link between monetary policy and financial stability.Because of the existence of risk-taking channel of monetary policy,even though monetary policy can effectively control inflation and promote economic growth,it could not necessarily maintain financial stability.In order to prevent the recurrence of the financial crisis,international organizations and countries around the world have focused on building the macroprudential policy framework,trying to alleviate the negative effects of monetary policy on systemic financial risks and financial stability.China has also made a series of positive explorations in the construction of macroprudential policy framework.In 2011,China established several counter-cyclical macroprudential regulatory indicators.China established a macroprudential assessment system(MPA)in 2015,and proposed to establish a "monetary policy + macroprudential policy’Dual-Pillar financial regulatory framework in 2016.The authourity calls for the improvement of the regulatory framework of the two pillars in 2017In the macroprudential policy system,most of the policy instruments are aimed at commercial banks,such as counter-cyclical capital buffer,dynamic reserve ratio,dynamic reserve adjustment mechanism and so on.It is necessary to achieve the goal of preventing systemic financial risks and maintaining financial stability by means of supervision and regulation of banks.On the other hand,the risk-taking channel of monetary policy reduces financial stability by improving bank risk-taking.It can be seen that macroprudential policy and monetary policy risk-taking channel may have relevance in some extent.Does the implementation of macroprudential policy affect the transmission effect and mechanism of monetary policy risk-taking channel,and could it effectively reduce the adverse impact of risk-taking channel on financial stability and output?The answers to these questions will not only help to evaluate the effectiveness of China’s macroprudential policy,but also promote to understand the relationship between monetary policy and macroprudential policy,and provide some reference for the authorities to improve the Dual-Pillar regulatory framework.Based on the above analysis,this paper focuses on the risk-taking channel of monetary policy and macroprudential policy from the following three aspects.Firstly,on the basis of the existence of risk-taking channel of monetary policy,this paper quantitatively analysis the transmission effect and relative effect of the mechanism of risk-taking channel by using the separate technology in pulse partial derivative.Secondly,based on the theoretical model,this paper empirically explores the effect of macroprudential policy on the risk-taking channel from the comprehensive level and classification level by using the constructed macroprudential policy index,and investigates the mechanism of macroprudential policy influencing risk-taking channel.Thirdly,it constructs the SVAR model to explore how macroprudential policy influences the macroeconomic effects of risk-taking channel.The main conclusions are as follows:First,the risk-taking channel exits in China.When the central bank implements a loose monetary policy,the conditions for loan approval of commercial banks will be relaxed,then the bank risk-taking will increase.Monetary policy affects bank risk-taking through three kinds of mechanism,namely valuation income and cash flow effect,profit-seeking effect and expectation effect.Among these mechanisms,income and cash flow effects play the most important roleSecond,the tightening macroprudential policy can weaken the transmission effect of monetary policy risk-taking channel through restraining the rise of asset price,increasing the profitability of banks and adjusting the economic expectations of banks.When the loose monetary policy promotes the bank risk-taking,tightening the macroprudential policy can inhibit the excessive rise of bank risk-taking,thereby weakening the adverse impact of loose monetary policy on bank risk-taking behavior and effectively maintaining finance stability.Among the four types of macroprudential policy,capital instruments and liquidity instruments can more effectively contain the adverse effects of monetary policy on the bank risk-taking.Third,in the different stage of business cycle,the influence of macroprudential policy on the transmission effect of monetary policy risk-taking channel is not consistent.It will be significant in the boom.Further analysis shows that among the four types of macroprudential policy tools,the coefficients of capital tools and asset tools are more different in the boom and bust,and the size and significance level of their coefficients in the boom are greater than those in the bust.Forth,the implementation of macroprudential policy can effectively alleviate the adverse impact of monetary policy risk-taking channel on financial stability.In addition,among the four types of macroprudential policy tools,the liquidity policy tools have the most significant impact in the long run.Based on the previous literatures,this paper tries to make some improvements,and achieves the following innovations:firstly,this paper innovatively constructs macroprudential policy index which comprehensively reflect the strength,direction and frequency of policy adjustment;secondly,separate technology in pulse partial derivative is applied to the analysis of the mechanism of risk-taking channel,this paper quantitatively analysis the transmission effect and relative effect of each mechanism of risk-taking channel;thirdly,this paper explores the mechanism of macroprudential policy affecting risk-taking channel;forthly,considering the asymmetric effect of the economic cycle,this paper analysis the difference in the effect of macroprudential policy on risk-taking channel at different stages of the economic cycle.