Essays on Monetary Policy and Financial Stability
This dissertation consists of three independent chapters that study the relationship between monetary policy and financial stability. In the first chapter, I present new empirical evidence for the existence and the aggregate economic implications of the "risk-taking channel" of monetary transmission. I first use loan-level data from the syndicated loan market in the U.S. to show that monetary policy affects banks' sensitivity to risk. I then provide evidence for the significant contribution of risk-taking shocks and changes in banks' risk-taking behavior to economic outcomes and business cycle fluctuations. The second chapter examines how competition in the banking sector affects the transmission of monetary policy and the variation of credit expansion across regions in the United States. Using the U.S. branching deregulation between 1994 to 2008 as an exogenous change in banks' competition, I analyze how banks' market power affects monetary policy transmission through the bank lending channel. The results document a significant and negative relationship between banks' market power and the effect of monetary policy on banks loan supply. I then show that states with a more deregulated banking sector were more affected by monetary conditions in the years leading to the Great Recession. Specifically, the effect of loose monetary conditions on the expansion of households' debt was stronger in states that had fewer bank branching restrictions. The results suggest that variations in the level of bank competition may have amplified regional asymmetries in years leading to the Great Recession. The third chapter studies the effect of bank competition on the optimal use of monetary and macroprudential policies. I first present empirical evidence documenting the dampening impact that banks' market power has on the transmission of monetary policy in the United States. To study the policy implications of these findings, I develop a New Keynesian DSGE model with collateral constraints and an imperfect competitive banking sector. The results from the model demonstrate that the degree of competition in the banking sector has a sizable impact on the optimal mix of monetary and macroprudential policies. Specifically, the gains from leaning-against-the-wind monetary policy are substantially smaller when the banking sector is less competitive.
Segev, Nimrod, "Essays on Monetary Policy and Financial Stability" (2019). ETD Collection for Fordham University. AAI13420048.