Risk-Taking Channel of Monetary Policy: A Global Game Approach
نویسندگان
چکیده
We explore a global game model of the impact of monetary policy shocks. Risk-neutral asset managers interact with risk-averse households in a market with a risky bond and a oating rate money market fund. Asset managers are averse to coming last in the ranking of short-term performance. This friction injects a coordination element in asset managers portfolio choice that leads to large jumps in risk premiums to small future anticipated changes in central bank policy rates. The size of the asset management sector is the key parameter determining the extent of market disruption to monetary policy shocks. We are grateful to Mike Woodford for an insightful discussion at the 2nd INEXC conference at NYU in February 2014. The views expressed in this paper are those of the authors and do not necessarily reect those of the Bank for International Settlements.
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