Journal of Economic Modeling Research

Risk-taking channel refers to the banks’ risky activities following the expansionary monetary policy. This channel may affect the financial and output stability. The risk-taking channel can influence bank soundness and hence be a source of financial instability and financial crisis. This topic has been the focus of many researches after the financial crisis of 2008. Using the structural vector autoregressive model, this paper investigates the existence of a risk-taking channel in Iran’s banking system for the period 2006:2-2015:1. The results of impulse-response functions confirm the presence of risk-taking channel in the Iran’s banking system. This channel is considered to be one of the sources of high non-performing loans in Iran’s banking system. Therefore, banking supervision and macro prudential policies may reduce the banks’ risky activities. Moreover, introducing risk-taking channel into the central bank’s loss function might be helpful in achieving financial stability and reducing the negative impacts of risk-taking channel on output and economic growth in Iran.