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Financial stability and economic policy coordination

Abstract : This thesis proposes an analysis of the triangle formed by monetary policy, prudential policy and bank’s risk-taking. Accordingly, this thesis aims to study the effects of monetary policy on banks’ risk-taking and to determine the conditions for monetary and prudential policy coordination in order to ensure the stability of the banking sector and the solvency of financial institutions. At the macroeconomic level, we also assess the impact of this coordination on domestic credit and on the expected cost of bank failure. The first chapter reviews the literature on theoretical and empirical analysis of the risk-taking channel, and the analysis of the issue of monetary policy coordination with prudential policy. This literature review reveals that the effects of monetary policy on bank risk-taking are not one-sided, calling into question our knowledge of the monetary risk-taking channel. Similarly, this chapter suggests that the nature of monetary and prudential policy coordination is not unique. The second chapter is devoted to an original empirical study on the risk-taking channel of monetary policy. Using a panel threshold model, we show that monetary policy has different effects depending on the "monetary regime" in which monetary policy is conducted. Thus, a fall in interest rates leads to more risk-taking if monetary policy is considered loose (interest rate below the Taylor rule rate). Conversely, when monetary policy is considered as restrictive (interest rate above Taylor’s rule rate), a decrease in interest rate reduces banks risk level. The third chapter examines the impact of monetary policy on bank’s risk according to the nature of prudential policy. Using a partial equilibrium model, we determine conditions under which monetary policy, in presence of a risk sensitive capital requirement ratio, would lead the bank to take more risk. The results show that the effects of monetary policy on banking risk are not independent of the nature of microprudential policy. The objectives of financial stability and reduction of the cost of a bank failure, taken together, makes it possible to identify situations in which it is necessary to complement the microprudential tool with a macroprudential one. However, macroprudential intervention, which comes at the expense of financing the economy, is not always effective in limiting the costs of bank failure.
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Submitted on : Friday, June 26, 2020 - 3:20:26 PM
Last modification on : Monday, October 12, 2020 - 10:28:21 AM


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Melchisedek Joslem Ngambou Djatche. Financial stability and economic policy coordination. Economics and Finance. Université Côte d'Azur, 2020. English. ⟨NNT : 2020COAZ0002⟩. ⟨tel-02882235⟩



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