00000nam 2200000za 4500 9.830347 CaOODSP 20221107145517 cr ||||||||||| 170111s2016 oncd ob f000 0 eng d CaOODSP eng eng fre n-cn--- FB3-5/2016-59E-PDF Bauer, Gregory H. Monetary policy, private debt and financial stability risks [electronic resource] / by Gregory H. Bauer and Eleonora Granziera. [Ottawa] : Bank of Canada, c2016. ii, 36 p. : ill. (most in col.) Staff Working Paper, 1701-9397 ; 2016-59 "December 2016." Includes bibliographical references. "Can monetary policy be used to promote financial stability? We answer this question byestimating the impact of a monetary policy shock on private-sector leverage and thelikelihood of a financial crisis. Impulse responses obtained from a panel VAR model of18 advanced countries suggest that the debt-to-GDP ratio rises in the short run followingan unexpected tightening in monetary policy. As a consequence, the likelihood of afinancial crisis increases, as estimated from a panel logit regression. However, in the longrun, output recovers and higher borrowing costs discourage new lending, leading to adeleveraging of the private sector. A lower debt-to-GDP ratio in turn reduces thelikelihood of a financial crisis. These results suggest that monetary policy can achieve aless risky financial system in the long run but could fuel financial instability in the shortrun. We also find that the ultimate effects of a monetary policy tightening on theprobability of a financial crisis depend on the leverage of the private sector: the higherthe initial value of the debt-to-GDP ratio, the more beneficial the monetary policyintervention in the long run, but the more destabilizing in the short run"--Abstract, p. ii. Includes abstract in French. gccst Credit gccst Debt gccst Monetary policy Granziera, Eleonora. Bank of Canada. Staff working paper (Bank of Canada) 1701-9397 ; 2016-59 (CaOODSP)9.806221 PDF 757 KB https://publications.gc.ca/collections/collection_2017/banque-bank-canada/FB3-5-2016-59-eng.pdf