Capital Regulation, Risk-Taking And Monetary Policy: A Missing Link In The Transmission Mechanism?

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Executive Summary

Few areas of monetary economics have been studied as extensively as the transmission mechanism. The literature on this topic has evolved substantially over the years, following the waxing and waning of conceptual frameworks and the changing characteristics of the financial system. In this paper, taking as a starting point a brief overview of the extant work on the interaction between capital regulation, the business cycle and the transmission mechanism, the authors offer some broader reflections on the characteristics of the transmission mechanism in light of the evolution of the financial system.

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