Author
Misa Tanaka
Bio: Misa Tanaka is an academic researcher from Bank of England. The author has contributed to research in topics: Monetary policy & Moral hazard. The author has an hindex of 10, co-authored 29 publications receiving 608 citations.
Topics: Monetary policy, Moral hazard, Financial risk, Debt, Balance sheet
Papers
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TL;DR: The academic and policy debate regarding the role of central banks and financial regulators in addressing climate-related financial risks has rapidly expanded in recent years as mentioned in this paper, where the key controversies and potential research and policy avenues for the future are discussed.
Abstract: The academic and policy debate regarding the role of central banks and financial regulators in addressing climate-related financial risks has rapidly expanded in recent years. This Perspective presents the key controversies and discusses potential research and policy avenues for the future. Developing a comprehensive analytical framework to assess the potential impact of climate change and the low-carbon transition on financial stability seems to be the first crucial challenge. These enhanced risk measures could then be incorporated in setting financial regulations and implementing the policies of central banks.
297 citations
TL;DR: The authors examines the channels via which climate change and policies to mitigate it could affect a central bank's ability to meet its monetary and financial stability objectives, and argues that two types of risks are particularly relevant for central banks.
Abstract: This paper examines the channels via which climate change and policies to mitigate it could affect a central bank’s ability to meet its monetary and financial stability objectives. We argue that two types of risks are particularly relevant for central banks. First, a weather-related natural disaster could trigger financial and macroeconomic instability if it severely damages the balance sheets of households, corporates, banks, and insurers (physical risks). Second, a sudden, unexpected tightening of carbon emission policies could lead to a disorderly re-pricing of carbon-intensive assets and a negative supply shock (transition risks). Climate-related disclosure could facilitate an orderly transition to a low-carbon economy if it helps a wide range of investors better assess their financial risk exposures.
138 citations
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TL;DR: The academic and policy debate regarding the role of central banks and financial regulators in addressing climate-related financial risks has rapidly expanded in recent years as discussed by the authors, where the key controversies and potential research and policy avenues for the future are discussed.
Abstract: The academic and policy debate regarding the role of central banks and financial regulators in addressing climate-related financial risks has rapidly expanded in recent years. This Perspective presents the key controversies and discusses potential research and policy avenues for the future. Developing a comprehensive analytical framework to assess the potential impact of climate change and the low-carbon transition on financial stability seems to be the first crucial challenge. These enhanced risk measures could then be incorporated in setting financial regulations and implementing the policies of central banks.
114 citations
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Abstract: This paper analyzes the effect of bank capital adequacy regulation on the monetary transmission mechanism. Using a general equilibrium framework and a representative bank, the model demonstrates that the monetary transmission mechanism is weakened if banks are poorly capitalized, or if the capital adequacy requirement is stringent. The paper also assesses the impact of the New Basel Accord (Basel II), and argues that a rise in credit risk may lead to a sharper loan contraction under this new regime. Moreover, it predicts that Basel II may reduce the effectiveness of monetary policy as a tool for stimulating output during recessions.
99 citations
01 Jan 2020
TL;DR: In this article, the authors review the channels through which climate risks can affect central banks' monetary policy objectives, and possible policy responses are discussed, as well as approaches to incorporate climate change in central bank modelling.
Abstract: Climate change and policies to mitigate it could affect a central bank’s ability to meet its monetary stability objective. Climate change can affect the macroeconomy both through gradual warming and the associated climate changes (e.g. total seasonal rainfall and sea level increases) and through increased frequency, severity and correlation of extreme weather events (physical risks). Inflationary pressures might arise from a decline in the national and international supply of commodities or from productivity shocks caused by weather-related events such as droughts, floods, storms and sea level rises. These events can potentially result in large financial losses, lower wealth and lower GDP. An abrupt tightening of carbon emission policies could also lead to a negative macroeconomic supply shock (transition risks). This chapter reviews the channels through which climate risks can affect central banks’ monetary policy objectives, and possible policy responses. Approaches to incorporate climate change in central bank modelling are also discussed.
38 citations
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TL;DR: In this paper, the authors argue that insufficient attention has so far been paid to the link between monetary policy and the perception and pricing of risk by economic agents - what might be termed the "risk-taking channel" of monetary policy.
Abstract: 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, we offer some broader reflections on the characteristics of the transmission mechanism in light of the evolution of the financial system. We argue that insufficient attention has so far been paid to the link between monetary policy and the perception and pricing of risk by economic agents - what might be termed the "risk-taking channel" of monetary policy. We develop the concept, compare it with current views of the transmission mechanism, explore its mutually reinforcing link with "liquidity" and analyse its interaction with monetary policy reaction functions. We argue that changes in the financial system and prudential regulation may have increased the importance of the risk-taking channel and that prevailing macroeconomic paradigms and associated models are not well suited to capturing it, thereby also reducing their effectiveness as guides to monetary policy.
1,365 citations
TL;DR: In the aftermath of the 2008 financial crisis, there seems to be agreement among both academics and policymakers that financial regulation needs to move in a macro-prudential direction as discussed by the authors.
Abstract: Many observers have argued the regulatory framework in place prior to the global financial crisis was deficient because it was largely “microprudential” in nature (Crockett, 2000; Borio, Furfine, and Lowe, 2001; Borio, 2003; Kashyap and Stein, 2004; Kashyap, Rajan, and Stein, 2008; Brunnermeier et al., 2009; Bank of England, 2009; French et al., 2010). A microprudential approach is one in which regulation is partial-equilibrium in its conception, and aimed at preventing the costly failure of individual financial institutions. By contrast, a “macroprudential” approach recognizes the importance of general-equilibrium effects, and seeks to safeguard the financial system as a whole. In the aftermath of the crisis, there seems to be agreement among both academics and policymakers that financial regulation needs to move in a macroprudential direction. According to Federal Reserve Chairman Ben Bernanke (2008): Going forward, a critical question for regulators and supervisors is what their appropriate "field of vision" should be. Under our current system of safety-and-soundness regulation, supervisors often focus on the financial conditions of individual institutions in isolation. An alternative approach, which has been called systemwide or macroprudential oversight, would broaden the mandate of regulators and supervisors to encompass consideration of potential systemic risks and weaknesses as well.
874 citations
TL;DR: In this article, the authors argue that insufficient attention has so far been paid to the link between monetary policy and the perception and pricing of risk by economic agents, what might be termed the "risk-taking channel" of monetary policy.
862 citations
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TL;DR: From smart grids to disaster management, high impact problems where existing gaps can be filled by ML are identified, in collaboration with other fields, to join the global effort against climate change.
Abstract: Climate change is one of the greatest challenges facing humanity, and we, as machine learning experts, may wonder how we can help. Here we describe how machine learning can be a powerful tool in reducing greenhouse gas emissions and helping society adapt to a changing climate. From smart grids to disaster management, we identify high impact problems where existing gaps can be filled by machine learning, in collaboration with other fields. Our recommendations encompass exciting research questions as well as promising business opportunities. We call on the machine learning community to join the global effort against climate change.
441 citations
TL;DR: In this article, a macro-prudential policy could curb these credit cycles, both through raising the cost of maintaining risky portfolios and through an expectations channel that operates via banks' perceptions of other banks' actions.
Abstract: Credit cycles have been a characteristic of advanced economies for over 100 years On average, a sustained pick-up in the ratio of credit to GDP has been highly correlated with banking crises The boom phases of the cycle are characterised by large deviations in credit from trend A range of mechanisms can generate these effects, each of which has strategic complementarity between banks at its core Macro-prudential policy could curb these credit cycles, both through raising the cost of maintaining risky portfolios and through an expectations channel that operates via banks' perceptions of other banks' actions
430 citations