Job Market Paper

Navigating Extreme Low-Interest Rates: Bank Risk-taking and

Macroprudential Policies. 

Last Version / Slides

This paper delves into the effectiveness of macroprudential policies in curbing banks' risk-taking tendencies during prolonged periods of accommodative monetary policy. It aims to identify the most suitable macroprudential tools for this purpose. Utilizing an unbalanced panel dataset encompassing 1074 commercial banks from 38 countries spanning from 2010 to 2018, the study reveals a discernible deterioration in banks' risk-taking behaviour over the past decade. However, this trend may potentially be mitigated through the application of more stringent measures targeting borrowers, bank capital, and credit management policies.

The findings underscore the effectiveness of borrower-based instruments and measures focused on enhancing banks' credit management policies in countering the impact of prolonged monetary accommodation, especially in extreme scenarios. Considering specific bank characteristics, capital-based and borrower-side instruments exhibit heightened effectiveness for banks with weaker capitalization or limited liquidity. Conversely, instruments targeting banks' credit management policies prove more efficacious for well-capitalized banks with ample liquidity. 

Moreover, the research demonstrates that the three categories of macroprudential instruments show heightened effectiveness in less concentrated markets. This article offers valuable insights for policymakers, guiding the appropriate timing and choice of instruments for implementing policy actions effectively under scenarios of monetary accommodation. 

Revisiting 15 years of unusual Transatlantic Monetary Policies 

With  G. Levieuge (Banque de France) and JG Sahuc (Banque de France)

Last Version

The European Central Bank and the Federal Reserve introduced new policy instruments and made changes to their operational frameworks to address the global financial crisis (2008) and the Covid-19 pandemic (2020). We study the macroeconomic effects of these monetary policy evolutions on both sides of the Atlantic Ocean by developing and estimating a tractable two-country dynamic stochastic general equilibrium model. We show that the euro area and the United States faced shocks of different natures, explaining some asynchronous monetary policy measures between 2008 and 2023. However, counterfactual exercises highlight that all conventional and unconventional policies implemented since 2008 have appropriately (i) supported economic growth and (ii) maintained inflation on track in both areas. The exception is the delayed reaction to the inflationary surge during 2021-2022. Furthermore, exchange rate shocks played a significant role in shaping the overall monetary conditions of the two economies.