Risk-taking channels and capital inflows into the US treasuries

- Dynamic interactions among capital inflows, asset prices, and leverage are explored.
- How inflows to the US Treasuries affect risk-taking of financial intermediaries.
- Inflows into the US Treasuries induce higher asset prices and leverage.
- An amplification mechanism between asset prices and leverage is triggered by inflows.

This letter explores dynamic interactions among capital inflows, asset prices, and leverage. A VAR model provides evidence that expansionary shocks to capital inflows into the US Treasuries lead to higher leverage by inducing appreciation in relative asset prices.