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Household Optimism and Overborrowing

Hyytinen, Ari; Putkuri, Hanna (2018)

Journal of Money, Credit and Banking 1; February 2018

Published in Bank of Finland Research Discussion Papers 21/2012.

We use Finnish household-level data from 1994 to 2013 to measure how often and what kind of forecast errors households make and how the errors are linked to the households' borrowing behavior and overindebtedness. We find that those households that make the largest optimistic forecast errors have greater debt-to-income ratios. They also are more likely to report that they suffer from excessive debt loads and have problems in coping with their bills. There are no such systematic effects for the households that make pessimistic forecast errors.
The interaction of monetary and macroprudential policies

Silvo, Aino (2019)

Journal of Money, Credit and Banking 4 ; June

Published in Bank of Finland Research Discussion Papers 1/2016.

I analyze a New Keynesian dynamic stochastic general equilibrium (DSGE) model where the financing of productive investment is affected by a moral hazard problem. I solve for jointly Ramsey‐optimal monetary and macroprudential policies. I find that when a financial friction is present in addition to the standard nominal friction, the optimal policy can replicate the first‐best allocation if the social planner can conduct both monetary and macroprudential policy. Using monetary policy alone is not enough: a policy trade‐off between stabilizing inflation and output gap emerges. When policy follows simple rules, the source of fluctuations is relevant for the choice of the appropriate policy mix.
The Risk-Taking Channel of Monetary Policy in the U.S. : Evidence from Corporate Loan Data

Delis, Manthos D.; Hasan, Iftekhar; Mylonidis, Nikolaos (2017)

Journal of Money, Credit and Banking 1 ; February

Published in BoF DP 18/2017.

To study the presence of a risk-taking channel in the U.S., we build a comprehensive data set from the syndicated corporate loan market and measure monetary policy using different measures, most notably Taylor (1993) and Romer and Romer (2004) residuals. We identify a negative relation between monetary policy rates and bank risk-taking, especially in the run up to the 2007 financial crisis. However, this effect is purely supply-side driven only when using Taylor residuals and an ex ante measure of bank risk-taking. Our results highlight the sensitivity of the potency of the risk-taking channel to the measures of monetary policy innovations.