High risk aversion is a threat to expansionary monetary policies

Since the start of 2018, there has been a marked rise in risk aversion in the financial markets , due to protectionist policies , geopolitical tensions, US sanctions on Iran and political concerns in Europe. A rise in risk aversion makes expansionary monetary policies less effective since: Risk premia are increased; Share prices fall; Credit demand is reduced. Several monetary policy transmission channels (risk channel, wealth channel, credit channel) are then affected by the rise in risk aversion.