Risk endogeneity at the lender/investor-of-last-resort

Arbeitspapier

We address the question to what extent a central bank can de-risk its balance sheet by unconventional monetary policy operations. To this end, we propose a novel risk measurement framework to empirically study the time-variation in central bank portfolio credit risks associated with such operations. The framework accommodates a large number of bank and sovereign counterparties, joint tail dependence, skewness, and time-varying dependence parameters. In an application to selected items from the consolidated Eurosystem's weekly balance sheet between 2009 and 2015, we find that unconventional monetary policy operations generated beneficial risk spill-overs across monetary policy operations, causing overall risk to be nonlinear in exposures. Some policy operations reduced rather than increased overall risk.

Object Details

• ISBN: 978-92-899-3487-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2225

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models
• Subject: Credit risk ; risk measurement ; central bank ; lender-of-last-resort ; unconventional monetary policy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Caballero, Diego ; Lucas, André ; Schwaab, Bernd ; Zhang, Xin
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2019

Further information

• DOI: doi:10.2866/40757
• Handle: http://hdl.handle.net/10419/208259
• Last update: 10.03.2025, 11:41 AM CET