The risk channel should not be forgotten

If demand for risk-free bonds declines ex ante relative to the supply of risk-free bonds, at equilibrium demand for risk-free bonds must increase, so demand for risky assets must decrease, and this leads to an increase in risk premia on risky assets. This mechanism (the risk channel) should not be forgotten when analysing monetary policies. Central banks' purchases of risk-free bonds have led to ex ante excess demand for these bonds, leading to a fall in risk premia on risky assets. Conversely, the end of purchases of risk-free bonds by central banks will lead to a rise in risk premia.