Shadow Banks and the Risk-Taking Channel of Monetary Policy Transmission in the Euro Area

In this paper, we provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through an increase in shadow banks' total asset growth and their risk assets ratio. Our dataset covers the period 2000Q1-2018Q3 and includes, in addition to the standard variables for real GDP growth, inflation, and the monetary policy stance, the aforementioned two indicators for the shadow banking sector. Based on vector autoregressive models for the euro area as a whole, we find that a portfolio reallocation effect towards riskier assets is more pronounced for conventional monetary policy shocks. For unconventional monetary policy shocks we partly detect stronger evidence for a general expansion of financial assets. Country-specific as well as sector-specific estimations confirm these findings for most of the euro area countries and all shadow bank types, but also reveal some heterogeneity in the shadow banks' reaction