Countries included: Australia; Brazil; Canada; China; France; Germany; India; Italy; Japan; Korea; Netherlands; Norway; Singapore; Spain; Sweden; Switzerland; United Kingdom; United States. Chart 23: Intertemporal trade-off with monetary policy and the CCyB (taken from Aikman, Giese, Kapadia, & McLeay (forthcoming))  53  All speeches are available online at www.bankofengland.co.uk/speeches  53  References Acharya, V. V., & Steffen, S. (2015). The “greatest” carry trade ever? Understanding eurozone bank risks. Journal of Financial Economics, 115(2), 215-236. Acosta-Smith, J., Grill, M., & Lang, J. H. (2017). The leverage ratio, risk-taking and bank stability. ECB Working Paper Series, No. 2079. Admati, A. R., & Hellwig, M. F. (2011). Good Banking Regulation Needs Clear Focus, Sensible Tools, and Political Will. International Centre for Financial Regulation Research Paper. Admati, A., & Hellwig, M. (2013). The bankers' new clothes: What's wrong with banking and what to do about it. Princeton University Press. Adrian, T., & Ashcraft, A. B. (2012). Shadow banking regulation. Annu. Rev. Financ. Econ., 4(1), 99-140. Afonso, G., Santos, J. A., & Traina, J. (2015). Do “too-big-to-fail” banks take on more risk? Journal of Financial Perspectives, 3(2), 129143. Aikman, D., Bahaj, S., Bridges, J., Ikeda, D. & Siegert, C. (forthcoming). What impact did the FPC's July 2016 CCyB rate cut have on the supply of bank credit? mimeo. Aikman, D., Galesic, M., Gigerenzer, G., Kapadia, S., Katsikopoulos, K., Kothiyal, A., Murphy, E., & Neumann, T. (2014). Taking uncertainty seriously: simplicity versus complexity in financial regulation. Bank of England Financial Stability Paper No. 28, May 2014.

Moreover, redemptions of as little as 1.3% of total assets exhaust the dealer’s capacity to intermediate trades, leading to a market ‘freeze’. In a similar spirit, Braun-Munzinger et al (2016) develop an agent-based model of the corporate bond market comprising a market maker, fund traders and fund investors. They find that funds pursuing similar trading strategies can exacerbate price movements and contribute to the pro-cyclicality of financial markets. Additionally, the growth of passive investments may have both positive and negative effects on volatility: they decrease yield volatility on average, but can increase the likelihood of large dislocations after shocks. While this fire-sale mechanism applies most directly to financial intermediaries with marked-to-market balance sheets, and funds that can be redeemed at short notice, a similar dynamic can operate if there are forced sales by owners of, or investors in, real estate who are credit-constrained borrowers. This, too, can drive prices lower in a feedback loop. Some of these mechanisms were in play recently among UK real estate investment vehicles following the EU referendum result (Bank of England (2016b)). A related, but distinct, mechanism through which financial frictions can affect the wider economy is through aggregate demand externalities. In Korinek and Simsek (2016), credit-constrained households de-lever sharply when an adverse shock hits. If the shock is large enough, the resulting fall in aggregate demand can push the economy into a liquidity trap with interest rates constrained at the effective lower bound.