Acta Universitatis Danubius. Œconomica, Vol 13, No 2 (2017)

Abstract

This paper investigates the linkage between monetary policy and banks excessive risk-taking for a panel of 22 Latin American countries, the OECD and South East Asia over the period 1990-2014. By performing panel cointegration and panel GMM models we found that the adoption of an expansionary monetary policy via an increase in the money supply and the application of low interest rates over an extended period of time may induce an increase in non-performing loans. However, a restrictive monetary policy with high interest rates attracts riskier investors.