Taken together, the results then point towards the fact that each of these channels can reasonably be expected to amplify the impact of monetary policy during boom periods. For instance, the “risk-taking” channel suggests that banks’ attitudes towards risk are strongly correlated with the monetary policy stance.
In the presence of very considerable intra-financial sector leverage, even relatively modest increases in policy rates can lead to significant changes in credit conditions and market dynamics, to the extent that they alter financial institutions’ risk tolerance.